Ex-PGE investors sue over Enron loss
Former Portland General Electric shareholders have entered the swirling Enron fray, claiming that they should be compensated for the huge amounts of money they lost after the utility was acquired by the now-bankrupt energy trader.
The shareholders, in a class-action lawsuit filed this month in Multnomah County Circuit Court, say two former PGE executives -- former Chief Executive Officer Ken Harrison and former Chief Financial Officer Joseph Hirko -- misled PGE shareholders in 1997 when they advised them to approve a merger with Enron.
The suit also names Arthur Andersen, then serving as both PGE's and Enron's auditor and accountant; Jack Wilborn, then managing partner of Andersen's Portland office; and Goldman Sachs, the New York-based investment banking firm that structured the merger.
Rick Martson, a Portland attorney representing Harrison, had no comment Thursday. None of the other defendants or their attorneys could be reached.
The lawsuit does not specify a specific amount of money. Gary Grenley, the Portland attorney who filed the lawsuits, said shareholders should be compensated because they "were not given the full picture" when they agreed to trade stable utility shares for shares in a "high-flying energy trader."
"People who got out of Enron, including Harrison and Hirko, did well," Grenley said. "If you were a long-term investor who held the stock, you lost practically everything." Hirko was indicted in May on 218 charges of conspiracy to commit wire and securities fraud. Hirko made $35 million on the sale of his Enron shares.
Hirko, who lives in the Portland area, is free on $3 million bond. Harrison has bought a winery in the Walla Walla area.
PGE shareholders received $1.8 billion worth of Enron stock when the utility was acquired in 1997. Enron stock no longer is traded and is "virtually worthless," the lawsuit says.
State law sets a two-year statute of limitations on such lawsuits. Grenley said the lawsuit should be viable because Enron did not declare bankruptcy until August 2001, less than two years ago.
The lawsuit comes as Enron prepares for its June 30 deadline for filing its bankruptcy plan. The city of Portland, led by Commissioner Erik Sten, is seeking to acquire PGE from Enron. If the city is successful it would then run PGE as publicly owned utility.
However, Enron could sell the utility to another buyer or give control of the company to creditors. PGE officials won't comment on whether they support the idea of city ownership.
The lawsuit is filed on behalf of Arthur K. McNett and Aileen G. McNett, a Portland couple who owned 200 shares of PGE common stock when the utility was acquired by Enron, and other shareholders "similarly situated." The couple bought the shares for $4,000 in the 1970s and suffered "significant damage" as a result of the acquisition, according to the lawsuit.
The lawsuit claims the defendants violated their responsibility to PGE shareholders when, in a June 1997 proxy statement, they recommended that the shareholders approve a proposed merger with Enron.
"They intentionally, recklessly and/or negligently ignored the systemic, pervasive financial and accounting fraud at Enron," the lawsuit said. "Defendants willingness to 'look the other way' was due, in part, to their lust for enormous payoffs."
Paul Graham, chief counsel for the state Public Utility Commission, said he could not comment because he had not seen the lawsuit. The PUC, the state's regulatory energy agency, approved the acquisition. Graham said ratepayers should not pay any costs regardless of the lawsuit's outcome.
"If there were any liability of former company officers to the shareholder, PUC's position is that ratepayer should be held harmless," Graham said.
Although the suit is the first one filed specifically on behalf of PGE shareholders, Enron faces a flood of litigation. A federal judge in Houston has set a December 2003 trial date for more than 70 lawsuits filed by Enron shareholders and former employees.
Jonathan Brinckman: 503-221-8190; firstname.lastname@example.org