Enron to File Plan to Exit Bankruptcy

By Peter Behr
Washington Post Staff Writer
Friday, July 11, 2003; Page E01

Enron Corp.'s caretaker chief executive will file a bankruptcy reorganization plan today that would disburse the remains of the company to its creditors, marking a milestone in a legal epic that still has years to run.

Stephen F. Cooper -- whose firm, Kroll Zolfo Cooper, specializes in corporate salvage and disposal -- has won support for his plan from lawyers representing the two largest groups of Enron's unsecured creditors.

"Bankruptcy cases that are a small fraction of the size and complexity of this case have taken many times longer to conclude," said Martin J. Bienenstock of Weil, Gotshal & Manges, Enron's lead counsel in the bankruptcy case. The bankruptcy plan to be filed today "is a meaningful achievement," he said.

Bienenstock said Enron still hopes the plan will be approved by creditors by the end of this year. But disputes over claims and payments could stretch the huge case out two more years, he said.

That would keep it in step with the glacial pace of government investigations and civil lawsuits involving the scandal-marked Houston energy trader.

The first criminal trial in the two-year-old Enron investigation isn't scheduled to begin until January. The defendant won't be one of the top executives; she will be Lea W. Fastow, wife of the company's former chief financial officer, who briefly worked for the firm.

Lawyers for Enron shareholders don't expect to get their day in court any sooner than October 2005, unless their lawsuit against the company's top executives and bank lenders is settled. They are trying to collect $25 billion.

Cooper, who once called Enron's labyrinthine structure something designed "at 4 a.m. in a nightmare dream," proposes to put Enron's gas pipeline holdings into one company, and its international power plants in another. Both would be spun off to more than 25,000 creditors who queued up when the Houston energy trader filed for bankruptcy protection in December 2001.

Cash from the sale of other assets would be added, creating $10 billion to $20 billion in assets to divide among creditors, lawyers in the case said yesterday.

Against that are claims for more than $200 billion by Enron's banks, bondholders, suppliers and other creditors, an amount company lawyers hope to cut in half.

Some fortunate creditors that had guaranteed energy deals with Enron will be repaid in full, Bienenstock said. "Others will get close to nothing," he said. Most creditors will not be paid until all claims are resolved.

The Justice Department's Enron task force has produced 12 indictments and four guilty pleas. Civil charges have also been filed against former executives or energy traders by the Securities and Exchange Commission, the Labor Department, and the Commodity Futures Trading Commission.

Except for former chief financial officer Andrew S. Fastow, who faces conspiracy and fraud charges, and Kenneth Rice, the former head of broadband operations who is charged with deceiving investors about his group's venture, no senior executives have been indicted.

Enron founder and former chairman Kenneth L. Lay remains under investigation for his stock sales as the company's fortunes sank, but the government has not brought insider trading charges after spending months on the issue. Lay's lawyers said his stock sales were permitted under arrangements approved by the company's directors.

Prosecutors continue to question witnesses about former chief executive Jeffrey K. Skilling's role in touting the broadband venture early in 2001, as it was about to crash, lawyers say.

But prosecutors' hopes for a speedy case against Lay and Skilling have been frustrated by a the absence of testimony against the leaders by their closest associates, lawyers in the case say. Fastow and Rice intend to fight the government's charges. Rice and six members of his broadband team are scheduled to go to trial next April and Fastow does not yet have a trial date.

Democrats, meanwhile, are waiting to bring up Lay's political and social ties to President Bush and his family if the Enron founder is not charged before the 2004 presidential election.

One of Lay's attorneys, Michael Birrer, has already complained of political motives after the Labor Department filed a suit last month against Lay and Skilling. The action, accusing the two men of failing to protect employees' retirement investments in Enron stock, was done "to appease Congressional demands," Birrer said.

"The longer this goes, the more political pressure it creates and the more it erodes the public's view of what's going on," said Houston lawyer David H. Berg, who represents one of Enron's former banks in the shareholder suit.

Last in line is the class action suit brought by shareholders who lost $60 billion in Enron's last year of operation. U.S. District Judge Melinda Harmon is pushing hard on lawyers for Enron and its creditors, bankers and shareholders to settle the case, ordering them to meet with a court-appointed mediator in private negotiations.

Enron's bankers, the last "deep pockets" in the case, hold the key to the negotiations, lawyers say. The shareholders' attorneys claim that the banks helped Enron conceal debts and exaggerate cash resources before it crashed -- charges the banks deny.

The calendar may not be on the financial institutions' side, some experts say. "In any of these class actions, ordinarily your case doesn't get better with time. More and more evidence turns up, more and more issues are raised. So the pressure is on to get rid of it early," said Gary M. Brown, a Nashville lawyer and former counsel to a Senate subcommittee that investigated Enron.