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April 22, 2002
DOL Says Enron Deceived It on Pension Plan
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U.S. Department of Labor is suggesting that Enron deceived the government by never intending to keep its agreement to turn over control of its employee pension plans to an independent firm whose fees it would pay.

"It seems reasonable to conclude that Enron did not merely break its agreement with the government, it embarked on a course two months ago to deceive the government by entering an agreement that it had no intention of honoring," top department lawyer Eugene Scalia said in a letter to Enron.

The New York Times reports that Enron did not respond to its request for comment about Scalia's letter.

Last year, as Enron collapsed in an accounting scandal, the value of the 401(k) plans for employees and retirees plunged by more than 60 percent because the plans were largely invested in Enron stock.

Lawmakers expressed outrage upon learning that an Enron executive who serves as a trustee of the pension plans had been alerted to warnings about Enron's finances but never acted to protect employees' investments.

Amid pressure from lawmakers and threats by the Labor Department to go to court to oust the trustees, Enron agreed in March to turn over control of the plans to the State Street Corporation, which was to be paid up to $2.7 million a year out of Enron's assets. The retirement plans have combined assets of more than $2 billion, according to government and company officials.

But two weeks ago, Enron backed out of the deal at a bankruptcy hearing in New York, according to Labor Department officials. After Judge Arthur J. Gonzalez of United States Bankruptcy Court asked whether the payments to State Street might be considered "prepetition" claims, and thus ineligible to be paid from the estate, lawyers for the company agreed that the events that led to the deal with the Labor Department arose before Enron filed for bankruptcy protection.

Judge Gonzalez did not approve paying the fees out of the company's assets.

People close to the case told the Times that the DOL may soon file papers in bankruptcy court seeking to have State Street take over the pension plans anyway and be paid temporarily out of the assets of the plans while the government's quarrel with Enron continues.

After the bankruptcy hearing earlier this month, Enron insisted that its lawyers had stuck to the deal with the Labor Department and had even told the judge that the company did not oppose paying the fees out of the estate.

But in his letter to Enron, sent last week, Mr. Scalia said the transcript showed that Enron went out of its way to tell the judge not to approve the fees. He contended that the company's lawyers even suggested that the only reason Enron agreed to the DOL's deal in the first place was to avoid a dispute with the agency.

To read the New York Times article, click here. Registration required.

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