HOUSTON -- Lawyers for the lead plaintiffs in a lawsuit that has recouped about $7.8 billion lost by Enron Corp. shareholders and investors asked a judge Friday to give preliminary approval of their plan to distribute the funds, calling the proposal fair and reasonable.
But attorneys representing other investors and shareholders who are also part of the ongoing litigation objected, saying the plan unfairly allocates moneys and dismisses some legitimate claims.
U.S. District Judge Melinda Harmon didn't immediately decide whether to sign off on the plan so it can be mailed to investors and shareholders for their review. About 1.5 million individuals are eligible to receive money from the settlement fund.
"Just let me stew about this a little bit," Harmon said.
The money recovered is part of a $40 billion lawsuit that alleges financial institutions that worked with Enron participated in the accounting fraud that led to the bankruptcy of the once-mighty energy company.
The regents of the University of California, the lead plaintiffs in the lawsuit, have filed in Houston federal court their plan for how to distribute the $7.8 billion, which has come mostly from such financial institutions as Bank of America, JPMorgan Chase & Co., Citigroup and Canadian Imperial Bank of Commerce. The regents published a draft of the allocation plan in July, getting public response.
Most of the money will be distributed to investors and shareholders who lost money on securities directly issued by Enron or its predecessor companies. A small portion will go to those who got securities from Enron-related entities.
In general, the plan is calculating shares of the settlement fund based on a formula that factors in such things as when a security was bought or sold, the purchase price paid and the type of stock that was bought.
To be eligible for the settlement, investors and shareholders needed to have bought Enron or Enron-related securities between Sept. 9, 1997 and Dec. 2, 2001.
Patrick Coughlin, a San Diego-based attorney for the lead plaintiffs, called the plan "fair and reasonable" but admitted that some plaintiffs might not be happy with what they get.
"Everybody thinks they should get a little more here and it's understandable in a case where the losses have been so severe," he said.
Coughlin said if Harmon gave her preliminary approval, his firm could send notices to shareholders by the end of the month, with final approval possibly by the end of February.
But Robert Finkel, an attorney representing a subclass of investors, objected to the plan putting all funds that have been recovered into one pot. He said his clients have won between $60 and $80 million from financial firms from claims they made related to certain violations of U.S. securities laws.
"It's our money," he said. "There should be no commingling of money."
Stephen Neuwirth, an attorney representing another group of investors, objected to the plan preventing individuals who received Enron shares as gifts from filing claims.
"Approving this plan ... is not reasonable or fair," he said.
The $40 billion suit was put on hold earlier this year by a federal appeals court ruling. Attorneys appealed to the U.S. Supreme Court. But the court neither accepted nor rejected it, instead deciding to hear another case that has similar issues related to setting boundaries in stockholder lawsuits for securities fraud. The court has not made a ruling in that case.
Enron, once the nation's seventh-largest company, entered bankruptcy proceedings in December 2001 after years of accounting tricks could no longer hide billions in debt or make failing ventures appear profitable.
The collapse wiped out thousands of jobs, more than $60 billion in market value and more than $2 billion in pension plans.
Enron founder Kenneth Lay and chief executive Jeff Skilling were convicted last year for their roles in the company's collapse. Skilling is serving a sentence of more than 24 years. Lay's convictions for conspiracy, fraud and other charges were wiped out after he died of heart disease last year.