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Florida's legal strategy in recouping its Enron losses will focus on the fund manager's investment guidelines.
By HELEN HUNTLEY, Times Staff Writer
© St. Petersburg Times, published May 9, 2002
Florida's legal attack on Alliance Capital Management for its investment of state pension fund assets will attempt to hang the New York money manager with its own words.
The state's lawsuit, filed late Tuesday in Leon County Circuit Court, aims to prove that Alliance failed to follow its self-proclaimed strategy when it loaded up on Enron Corp. shares that eventually cost the state pension fund more than $300-million.
One of the key documents in the case will be the single-page "Manager's Strategic Approach," which was part of Alliance's contract with the State Board of Administration. It says "investment success stems from the correct marriage of fundamentals gleaned from rigorous company specific research, and price." The statement goes on to pledge that steps will be taken to manage risk and that "portfolios are actively managed to react quickly to changing company fundamentals and prevailing factors in the market."
The state says nothing of the sort happened with Alliance's Enron investments. Instead, it claims, the money manager overlooked financial statement footnotes that should have alerted the manager to questionable partnership deals, then ignored cash flow problems and other eroding fundamentals. Rather than selling when Enron chief executive Jeffrey Skilling resigned suddenly, Alliance bought more Enron shares for the pension fund.
If Alliance had sold the Enron stock Aug. 14, when Skilling's departure became known, the pension fund would have avoided $230-million of its $300-million in damages, the suit says. Even a sale Oct. 16 would have saved two-thirds of the money. Enron's problems made the stock speculative and unsuitable for the retirement fund, the lawsuit says.
The state lawsuit makes five basic claims against Alliance: breach of contract, breach of good faith and fair dealing, breach of fiduciary duty, negligence and violation of state securities law.
The lawsuit asks for compensatory damages, interest and attorney's fees. It also serves notice that punitive damages will be requested later. The lead lawyers on the case are Guy M. Burns of Tampa and Thomas R. Grady of Naples.
Alliance officials could not be reached for comment Wednesday. Previously they have said that Alliance was a victim of Enron's fraud. The company has 20 days to file its answer in court.
Al Harrison, the Alliance manager who handled the state's account, and Tom Herndon, director of the State Board of Administration, are scheduled to testify May 16 before a subcommittee of the U.S. Senate Committee on Commerce, Science and Transportation.
-- Helen Huntley can be reached at huntley@sptimes. com or (727) 893-8230.