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America's New War Against Enron

Berg was among the first to detect cracks in the Enron facade.
Deron Neblett

Its former leaders are in seclusion, protected by elite bodyguards and high-tech security systems. Only a hard-core band of followers continues to staff its shattered shell, as a chorus of condemnation around the world denounces unethical strategies that wreaked havoc on tens of thousands of unsuspecting citizens. Any day now, the Bush administration will be adding another name -- Enron -- to the list of corporate states sponsoring economic terrorism.

Al Qaeda killed more than 3,000 U.S. civilians in minutes. Enron's energy traitors were a bit more humane and self-serving. Not having the stuff of suicide bombers, Enron's executive pilots took full advantage of golden parachutes to bail out of their high-flying corporate jet after setting the craft on a course to financial oblivion. In a business time frame, Enron pancaked faster than the twin towers.

CEO Ken Lay and former top execs Jeff Skilling and Andrew Fastow landed safely at their River Oaks redoubts equipped to hold out indefinitely and in high style. Employees and shareholders found themselves grasping retirement accounts and portfolios stuffed with near worthless stock.

The provisional leadership running the now bankrupt corporation then put less valuable workers out on the streets with no severance, three weeks before Christmas. Those needed to staff the gutted enterprise got enough C rations -- cash bonuses -- to stay fed and at their posts for a while longer. They had to promise to hunker down for 90 days, no matter how bad things get.

But the victims aren't taking it lying down. Since September 11, America's mind-set of "don't get mad, get even" applies to the home front as well as Afghanistan. And a whole army of well-trained court warriors in Houston is just itching to try its hand at smoking the Enron villains out of their comfy financial caves and tunnels. These moolah-hideen are more commonly known as plaintiff's lawyers.

Formerly the object of Republican scorn as tort tarts sucking the blood of big business, attorneys are suddenly right up there with firefighters as heroes, protecting the common man from Lay and company. Their motto: "Betcha can't eat just one."

The Houston law firm of Pearson & Pearson knew just how to go about recruiting troops with the right stuff. It issued communiqués on country-tough KIKK radio, soliciting victims for lawsuits. The response was immediate and overwhelming.

"I just got off the phone with one of the company's pilots," reports Jim Pearson, a partner in the firm. "Those guys had their own air force. He told me, 'If you send me a packet out today, this is where I live, but I don't know how long I'll be here.' " The pilot's life savings had evaporated over the last six months.

"They've been hit on all fronts," says the attorney. "If it was just getting fired, that would be one thing. And if it was just losing money in the stock market like a bunch of people have done this year, that would be another thing. It's like getting cut off at the head and feet at the same time. You're just left with the torso."

Pearson's firm is working with mega-plaintiff's attorney George Fleming to structure mass tort cases against Enron and its leadership. Those differ from class-action lawsuits in that they seek individual awards for clients, rather than a lump sum settlement to be divvied up equally among participants. (What's also interesting, the Fleming team includes George Bishop, freshly released from prison for tax evasion, now knocked down from influential lawyer to paralegal.)

After taking the temperature of Enron's victims, Pearson says the Enron executives are wise to take security precautions.

"I don't want to see these men hurt, but put yourself in these employees' place… Their entire life has just vaporized, and I don't know what happens when your life vaporizes. Each person reacts differently, and that's a lot of people to anticipate a lot of reactions about."

One of the first Houston attorneys to hoist a red flag at Enron was veteran litigator David Berg, Mayor Lee Brown's appointee who chaired the Houston Area Water Corporation. Berg came under intense pressure last winter from city officials and lobbyists to award Enron subsidiary Azurix a water purification plant contract potentially valued in the multibillions. Berg dug in his heels and with the support of other board members successfully opposed Azurix.

Berg says he detected disturbing cracks in the corporation's financial facade during negotiations. He recalls Enron chairman Lay balking when Berg demanded that the company guarantee Azurix's billion-dollar debt.

"What that said to me was, here's a company with a $90 billion cap that can't figure out a way to consolidate that loss onto their financial statement and cover it, and then get a job that would have been worth $3 billion ultimately."

Berg had just finished negotiating a legal settlement in which Marriott absorbed a $425 million payout without any effect on its stock value. Berg reasoned that Enron -- if its financial statement was accurate about assets -- shouldn't have hesitated to cover Azurix's debt. He concluded that company officials were hiding something.

Since Enron's collapse, the lawyer says, several former Azurix supporters have now issued apologies to him. Perhaps the most graphic occurred two weeks ago outside La Griglia restaurant. There Berg happened to encounter City Attorney Anthony Hall and former Azurix lobbyist Dave Walden. While Hall made bowing gestures, Walden actually stooped over and feigned kissing the attorney's buttocks.

Berg is now handling employee shareholder suits against the Enron leaders and believes criminal action may be in the pipeline as well. "There are four U.S. attorney's offices interested in this case," he says, "and the one in Los Angeles has had its stinger out since the energy crisis."

Tom Cunningham of Cunningham, Darlow, Zook & Chapoton says his law firm already has filed class-action suits on behalf of shareholders who purchased Enron stock after October 1998, the time that the company began issuing allegedly deceptive financial statements. One such suit accuses Enron, Lay, Skilling and Fastow of, among other things, fraudulently scheming to induce shareholders to buy at artificially inflated prices. The firm also represents longtime employees who had their retirement funds wiped out in the collapse.

Clients' emotions "run the gamut from total despair to total anger," says Cunningham. One secretary, who never graduated from college, worked her way up in the company but lost everything. Another client lost $1 million, says Cunningham, "and he's pissed, very angry."

That anger is directed at more than just Enron. Another high-profile Houston attorney, Rusty Hardin, is defending Enron's accounting firm, Arthur Andersen, which has come under fire for failing to disclose the company's questionable finances. Since Arthur Andersen is one of the few parties with assets intact, it's a magnet for shareholder and employee litigation.

"All of a sudden the person that everybody was filing suit against [Enron] is in bankruptcy," Hardin says. "What all the plaintiffs are obviously doing is thrashing around looking for what deep pocket is left standing and, 'Oh, over there -- it's Arthur Andersen.' "

Hardin figures that before the Enron dust settles, almost every major Houston law firm will be involved on one side or another.

"You have to assume there are large numbers of plaintiff's lawyers all over the city, state and country licking their lips," says Hardin. "You could take the trial section of the Houston Bar Association and just start throwing pins blindly."

One attorney representing victims cites a rumor that company liability insurance will not cover the personal assets of Enron board members and executives.

"That could be the hot story before it's over," says the lawyer wistfully. "They would be naked. And these are men with a lot of money, and that is not a good place to be. If that came to pass, it would change the landscape dramatically."

It would also provide some small measure of holiday cheer for thousands of unemployed Enron workers who have little else to celebrate.


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