nytimes . com article : enron paid out ' retention ' bonuses before bankruptcy filing
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enron paid out ' retention ' bonuses before bankruptcy filing
december 6 , 2001
by richard a . oppel jr . and kurt eichenwald
just days before enron ( news / quote ) filed for bankruptcy
and laid off 4 , 000 people , it paid out $ 55 million in
bonuses to about 500 employees , according to several people
who had dealings with the company .
yesterday evening , an enron spokesman confirmed the
bonuses , describing them as " retention incentives " for
crucial employees . bankruptcy experts said that the
payments were almost certain to be closely scrutinized -
and probably challenged - by enron ' s creditors .
separately , the labor department said yesterday that it had
opened an investigation into how enron managed its
employees ' 401 ( k ) retirement plans . those accounts were
heavily invested in enron shares , and company rules
prohibited many employees from diversifying their holdings .
the labor department said that employees had lost up to 90
percent of the value of their accounts .
" enron ' s employees have gotten the short end of the stick
in the sudden collapse of this company , " said labor
secretary elaine l . chao . enron has said that a temporary
freeze that kept some employees from shifting retirement
investments was long planned and allowed another company to
take over the job of administering the plan .
enron declined to say how much was paid out in bonuses , who
received the money or what the range of payments was .
executives of companies entering bankruptcy defend such
payments as necessary if there is to be any hope of
reorganizing as a going concern . but they often prove to be
incendiary . for example , in 1990 , when it was disclosed
that drexel burnham lambert had paid key executives some
$ 250 million in bonuses before filing for bankruptcy ,
creditors and the government reacted with outrage . in the
end , after court hearings on the issue , the drexel estate
sued the employees to get the money back .
the payments by enron " are substantially high , and that
means it probably does become an issue in the bankruptcy
case , " said james feder , a bankruptcy lawyer with feder &
mills , a law firm in los angeles . " the question might come
up as to whether there was fair consideration given for the
amount of these bonuses and whether they were reasonable
under the circumstances . "
if creditors can convince the court that the employees were
overpaid - or that the payments were made to keep money out
of creditors ' hands , a much more difficult argument to
prove - then the judge can void the payments and order the
money returned , said lynn lopucki , a law professor at the
university of california at los angeles .
to tamp down such disputes , a company typically will file a
request , as part of its bankruptcy filing , to make payments
to certain employees , and not proceed with the payments
until receiving a judge ' s approval , mr . lopucki said .
yesterday , mark palmer , an enron spokesman , defended the
payments as necessary " in order to protect and maintain the
value of the estate . " such payments " are done in every
bankruptcy , " he said , adding that the payments were made to
employees " at all levels of the organization . "
employees who lost their jobs after enron filed for
bankruptcy protection on sunday were told they may receive
no more than $ 4 , 500 in severance pay . they also were told
to petition the bankruptcy court to cash in unused vacation
days .
in another legal slap at enron , a shareholder lawsuit filed
late tuesday accused 29 enron officers and directors of
engaging in " massive insider trading " and making " false and
misleading " statements about the company ' s financial
performance while selling about $ 1 . 1 billion worth of stock
over the last three years .
an enron spokesman declined to comment on the suit , which
was filed by amalgamated bank , which is known to be an
activist shareholder .
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copyright 2001 the new york times company
nytimes . com article : enron paid out ' retention ' bonuses before
bankruptcy filing
this article from nytimes . com
has been sent to you by louise @ enron . com .
/ - - - - - - - - - - - - - - - - - - - - advertisement - - - - - - - - - - - - - - - - - - - - - - - \
special offer to ny times customers :
get free shipping on orders of $ 75 or more at starbucks . com
enron paid out ' retention ' bonuses before bankruptcy filing
december 6 , 2001
by richard a . oppel jr . and kurt eichenwald
just days before enron ( news / quote ) filed for bankruptcy
and laid off 4 , 000 people , it paid out $ 55 million in
bonuses to about 500 employees , according to several people
who had dealings with the company .
yesterday evening , an enron spokesman confirmed the
bonuses , describing them as " retention incentives " for
crucial employees . bankruptcy experts said that the
payments were almost certain to be closely scrutinized -
and probably challenged - by enron ' s creditors .
separately , the labor department said yesterday that it had
opened an investigation into how enron managed its
employees ' 401 ( k ) retirement plans . those accounts were
heavily invested in enron shares , and company rules
prohibited many employees from diversifying their holdings .
the labor department said that employees had lost up to 90
percent of the value of their accounts .
" enron ' s employees have gotten the short end of the stick
in the sudden collapse of this company , " said labor
secretary elaine l . chao . enron has said that a temporary
freeze that kept some employees from shifting retirement
investments was long planned and allowed another company to
take over the job of administering the plan .
enron declined to say how much was paid out in bonuses , who
received the money or what the range of payments was .
executives of companies entering bankruptcy defend such
payments as necessary if there is to be any hope of
reorganizing as a going concern . but they often prove to be
incendiary . for example , in 1990 , when it was disclosed
that drexel burnham lambert had paid key executives some
$ 250 million in bonuses before filing for bankruptcy ,
creditors and the government reacted with outrage . in the
end , after court hearings on the issue , the drexel estate
sued the employees to get the money back .
the payments by enron " are substantially high , and that
means it probably does become an issue in the bankruptcy
case , " said james feder , a bankruptcy lawyer with feder &
mills , a law firm in los angeles . " the question might come
up as to whether there was fair consideration given for the
amount of these bonuses and whether they were reasonable
under the circumstances . "
if creditors can convince the court that the employees were
overpaid - or that the payments were made to keep money out
of creditors ' hands , a much more difficult argument to
prove - then the judge can void the payments and order the
money returned , said lynn lopucki , a law professor at the
university of california at los angeles .
to tamp down such disputes , a company typically will file a
request , as part of its bankruptcy filing , to make payments
to certain employees , and not proceed with the payments
until receiving a judge ' s approval , mr . lopucki said .
yesterday , mark palmer , an enron spokesman , defended the
payments as necessary " in order to protect and maintain the
value of the estate . " such payments " are done in every
bankruptcy , " he said , adding that the payments were made to
employees " at all levels of the organization . "
employees who lost their jobs after enron filed for
bankruptcy protection on sunday were told they may receive
no more than $ 4 , 500 in severance pay . they also were told
to petition the bankruptcy court to cash in unused vacation
days .
in another legal slap at enron , a shareholder lawsuit filed
late tuesday accused 29 enron officers and directors of
engaging in " massive insider trading " and making " false and
misleading " statements about the company ' s financial
performance while selling about $ 1 . 1 billion worth of stock
over the last three years .
an enron spokesman declined to comment on the suit , which
was filed by amalgamated bank , which is known to be an
activist shareholder .
how to advertise
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
for information on advertising in e - mail newsletters
or other creative advertising opportunities with the
new york times on the web , please contact alyson
racer at alyson @ nytimes . com or visit our online media
kit at http : / / www . nytimes . com / adinfo
for general information about nytimes . com , write to
help @ nytimes . com .
copyright 2001 the new york times company