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© St. Petersburg Times, published March 3, 2002
Enron debacle leads to flurry of questions for investors
Q. On Nov. 14, my financial adviser called and pitched Enron Corp. bonds as very safe. I invested $9,595, which is now worth about $1,200. Where do bonds fit into the scheme as to who gets cash first? At maturity do bondholders receive what they paid for the bonds?
Q. I hold 200 shares of Enron Capital Trust preferred stock in my individual retirement account. It appears the stock price is still fluctuating even with the bankruptcy. How does that happen? I know I can't take the loss if I sell, but is there any point in holding the stock? Can I even sell it?
If there is some kind of class-action suit, will only the employees with 401(k) accounts be involved or will all shareholders be included?
A. My condolences to both of you.
Enron securities are still trading, which is why their price is fluctuating.
Buying stocks or bonds of a company in bankruptcy is a way to speculate that shareholders or bondholders eventually will recover more than the current price of the securities.
We know two things for sure about the Enron bankruptcy: 1. It will take a long time to sort out all the claims. 2. Stockholders and bondholders will not recover all the money they have lost. How much, if anything, you get will depend on how this case is resolved.
"They aren't going to get anything until the case is finished, which clearly will be years," said Naples lawyer Charles Tatelbaum, a bankruptcy expert.
Bankruptcy courts use a priority system for claims. The rule is that until a higher priority is paid in full, the next lower category doesn't get anything. However, Tatelbaum says higher priority creditors sometimes agree to allow something to be paid on lower priority claims in order to settle a case more quickly.
Secured claims, those with mortgages and liens on property, are paid first. Next come priority creditors, a group that includes employees owed back wages, operating costs during bankruptcy, lawyers' fees and unpaid withholding taxes. Unsecured creditors come after that. There is a pecking order within these broader groups. For example, bondholders rank ahead of stockholders among unsecured creditors.
Enron had numerous corporate entities. Tatelbaum said it is still to be determined whether all their assets and liabilities will be consolidated.
You may have a legal claim against the broker who recommended Enron bonds Nov. 14, which was after credit rating agencies had begun downgrading them. That created a risk that, in my opinion, made them inappropriate for conservative investors. You may wish to discuss your case with a lawyer who handles claims against brokerage firms.
Enron investors are part of a class action lawsuit separate from the one filed by Enron employees.
Q. If I purchase a stock through a broker and request that a certificate be sent to me, is there a charge for this?
But I don't recommend it. It's safer to hold your shares in a brokerage account than to keep a certificate, which is much more likely be lost.
Q. I read last June that Gov. Jeb Bush signed a bill into law changing the exemptions on the Florida intangibles tax. What happened? This year's forms appear to be the same as previous years. Any clarification you can provide would be appreciated.
A. The governor signed a bill in December delaying the tax cut for 18 months. This was part of a budget compromise to counteract a shortfall in state revenues. Delaying the tax cut will bring the state about $128-million in revenue.
More sites are charging these days for access to premium services, but with a little digging, you can still find plenty of good resources for free. Two prime examples are Morningstar's Portfolio X-Ray analysis and its ClearFuture Guidance, both premium services on the Morningstar Web site, but available free at T. Rowe Price & Associates. At T. Rowe Price, check under "investment tools" for "Portfolio X-Ray" and "ClearFuture." The tools provides in-depth analysis of mutual fund holdings and help planning for retirement.
-- Helen Huntley writes about investing and markets for the Times. If you have a question about investments or personal finance, send it to On Money. We'll try to answer those we think are of greatest reader interest. All questions must be submitted in writing, but readers' names will not be published. Send questions to Helen Huntley, Times, P.O. Box 1121, St. Petersburg, FL 33731.