State loses pension lawsuit
Jurors say a money manager "did his job to the best of his ability" when he bought Enron stock.
By JONI JAMES
Published April 19, 2005
TALLAHASSEE - A New York money manager did nothing wrong when it lost more than $281-million for the Florida state pension fund by buying Enron stock as the energy giant imploded, a Leon County jury found Monday.
The six-person jury, which included three state employees, ruled the Florida State Board of Administration had failed on all counts to prove that actions taken by Alliance Capital Management in the second half of 2001 were negligent, fraudulent or in breach of contract.
The jury, ruling after a six-week trial, even went so far as to award Alliance Capital's counterclaim for unpaid management fees of $1.1-million.
But an agreement signed just two hours before the verdict between the state agency and Alliance Capital won't require the state to pay anything. The agreement also bans the state from appealing.
"We're extremely disappointed. We thought we did the right thing," said Coleman Stipanovich, who inherited the lawsuit when he became executive director of the agency in 2002. "But six impartial Tallahassee jurors, including three state employees, didn't see it that way. ... I disagree with the verdict, but there will be no appeal."
The state also won't have to pay its outside counsel, Guy Burns of Tampa and Thomas Grady of Naples, who were hired on contingency. "This will cost the state nothing," Stipanovich said.
Counsel for Alliance Capital said their client and its money manager, Alfred Harrison, were vindicated. Harrison worked for the state for 17 years, eventually managing its largest outside account of $3.57-billion.
"They recognized the fact that this man and this organization did the job they were hired to do, more than they were hired to do," said Barry Richard, a Tallahassee attorney for Alliance Capital. "You don't get money just because you lose money and you file a lawsuit."
At the heart of the case was Harrison's ill-timed Enron buys in the weeks after the U.S. Securities and Exchange Commission announced on Oct. 22, 2001, that it would investigate the energy giant. Over the next several weeks, Harrison added 2.7-million Enron shares to bring to 7.6-million the number of shares in Florida's portfolio. Harrison said he was motivated by news that chief rival Dynergy was planning to buy the company and his belief the company's financials were sound.
The state contended Harrison should never have bought the stock, based on the company's marketing materials distributed in 2000 that spelled out how Harrison's large-cap growth team picked stocks.
The approach, the state contended, banned Harrison from buying stocks that the research team didn't deem top-rated and it should have encouraged him to unload the stock earlier. As early as August 2001, Alliance Capital's energy analyst, Annie Tsao, expressed doubts about Enron and had downgraded the stock.
On Nov. 30, 2001, when Harrison cashed out his clients' shares of Enron, including the 7.6-million he had bought for Florida, the trading price was 28 cents per share. Florida had paid a high of $82 and a low of $9 per share.
Counting Harrison's holdings, and shares in other pension fund accounts managed by other firms, Florida had lost nearly $330-million on Enron stock, the most of any public pension fund. It equated to one-third of 1 percent of the country's fourth-largest public pension fund with $96-billion in holdings.
But none of that mattered to the jury, said 30-year-old juror Alton Brown, a former Air Force computer and communications specialist from Woodville. The marketing materials weren't part of the contract, he said.
And while Alliance Capital might have done more to figure out that Enron was on the path to destruction, the message also came through that Alliance Capital was far from alone in being duped by Enron, Brown said.
"We totally believed this gentlemen did his job to the best of his ability," Brown said. "There was never any evidence to support anything else."
Also important to jurors, Brown said, was that for 17 years, Harrison had picked stocks for the state in a similar fashion without complaint.
Harrison grew $344.1-million in Florida deposits to $3.57-billion, giving him the largest account of any outside money manager for the state. Alliance Capital touted the record as $800-million more than the performance of the S&P 100 during the same 17 years.
Plus, Brown said, he was struck that Harrison was having face-to-face meetings with Enron executives, more information than Tsao would have at her disposal, assuming Enron was being honest.
"Do you tell your boss what to do or does your boss tell you what to do?" Brown said. "There was never anything in evidence that said if she said it was (no longer a top-rated stock) that he had to sell."
Monday's verdict brings to a close one of the high-profile issues of the 2002 gubernatorial campaign.
On news of Florida's pension fund loss, Democrats and state employee unions, hoping to unseat Gov. Jeb Bush, openly speculated without evidence that the governor had encouraged the buys, noting $6,500 in Enron-related contributions to the governor's 1998 campaign and the close ties to Enron founder Kenneth Lay in the White House. Time would show Harrison bought the same for all his clients, including his company's mutual fund.
Then-Democratic Attorney General Bob Butterworth launched a racketeering investigation after learning that Alliance Capital board member Frank Savage served on Enron's board. A year later, his office said it had found nothing nefarious.
Bush, who was in Orlando Monday afternoon, could not be reached. He was one of three statewide elected officials who voted in 2002 to sue Alliance. A spokesman said the governor was "disappointed in today's ruling."
Florida's public pension plan serves employees of more than 845 state and local government agencies, including school districts. Its membership includes 225,000 retirees and 650,000 active employees. No individual was hurt by the Enron loss, as Florida state law guarantees pension members benefits regardless of the pension plan's investment performance.
--Joni James can be reached at 850 224-7263 or email@example.com
[Last modified April 19, 2005, 01:19:14]
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