Ruling on fiduciary duty in Enron case
“[A] federal judge in Texas ruled Wednesday that former Enron Corp. Chairman Kenneth Lay and Northern Trust Corp., which administered Enron’s 401(k), can be sued under federal pension law as fiduciaries in the Enron 401(k) plan.”
“The wide-ranging, 329-page ruling . . . said Mr. Lay and Northern Trust — along with others who oversaw Enron’s retirement programs — had a responsibility to ensure that the plans’ investments were prudent, and that this responsibility extended to decisions about the use of Enron company stock in the retirement plan.”
“The employee lawsuit, filed in the months after the energy-trading company’s collapse, accused the company, Mr. Lay, other Enron executives, the retirement plans’ administrators, Northern Trust and others of misleading company employees by encouraging — or requiring — them to hold Enron stock in their retirement accounts, when the stock price was artificially inflated.”
“At the heart of the ruling is the question of who counts as a fiduciary for retirement plans and in what circumstances — in other words, who has a duty to act in the best interests of plan participants, rather than their own or their company’s best interest.”
“Although the ruling could come as a surprise to some . . . , Boston University law professor Tamar Frankel says its broad terms aren’t a departure from longstanding fiduciary law. Fundamentally, those with control over other people’s money can expect to have a fiduciary duty to those people — and the more power they have, the stronger the duty, Ms. Frankel said.”
The ruling merely denied defense motions, and establishes no liability — yet.
When the Enron scandal hit, unlike many who felt Lay would get away with all the money, I felt somehow the justice system would find a way to compensate the employee-victims. Hopefully, this decision goes far towards this end.
I’m concerned the opinion’s described as so long and “wide-ranging,” because to some extent this is a special case of fraudulent inflation of stock value combined with large benefit plan holdings of company stock, and should not be too far-reaching.
I’d hate to see it totally deter companies from offering their stock as part of benefit packages, because there are very good reasons for doing so. Employee ownership can be very good for morale and productivity, and provide a valuable retirement benefit at lower cost to the company than cash (ask the early-Microsoft millionaires) — that is, if (”big if”) the company’s not run by crooks.
Sphere: Related ContentIf you enjoyed this post, please consider leaving a comment or subscribing to the feed or by email.
Comments
No comments yet.
Leave a comment