After Enron, I'm Cynical About Investing

From The Patriot-News
2007 The Patriot-News

August 13, 2007

I worked as a mechanic at Hershey Foods for almost 40 years, had perfect attend ance for many years and socked away money to pay for our retirement.

When my son joined Merrill Lynch in 1999, I asked him to take charge of my investments. Because his employer assured him that Enron was a safe place to put my money, that's where he put a good portion of it. We all know what happened next.

Looking back, my wife and I know we shouldn't have believed the rosy predictions, the smiling executives or the falsified financial statements, which did so much to shield Enron's fiscal health.

I believed, mistakenly, that the system for reporting earnings had double and triple checks, that dishonest executives wouldn't be able to pull the wool over the entire investing community. You better believe I now preach a much more cautious -- some might say cynical -- view of investing.

We now know Enron's executives didn't act alone. They wouldn't have been able to paint such a glowing picture of the company's financial health without help from banks, which helped them doctor their financial statements to show false profits.

I, along with millions of other former Enron shareholders, sued Enron's banks in 2002, hoping to recoup some of our losses. According to internal Enron documents and testimony of bank employees, the banks engineered to keep billions of debt off Enron's balance sheet and create the illusion of increasing earnings and operating cash flow.

We settled with a number of banks for more than $7 billion, but several other banks refused to settle. Unfortunately, their refusal to make us whole was rewarded by the U.S. 5th Circuit of Appeals, which earlier this year gave the banks absolute immunity.

The court held that, although the banks' conduct was "hardly praiseworthy," because they didn't themselves make any "false statements" about their conduct, they could not be liable to the victims, even if they knowingly participated in the scheme to defraud Enron's shareholders.

The court acknowledged that its decision "may not coincide" with notions of justice and fair play," but the judges were apparently untroubled by that fact.

Those of us who lost our life savings, however, consider justice and fair play to be the minimum standards of ethical behavior -- and the least we should be able to expect from our courts of law.

We're appealing the ruling, but before our case will have a chance to be heard, the Supreme Court will hear Stoneridge Investment Partners v. Scientific-Atlanta Inc. et al. The outcome will essentially determine our case because the issues are the same: can a co-conspirator in a corporate fraud get away with it because they were smart enough not to talk about it?

Historically, the answer would have been "emphatically no." Scheme liability, as the principle is called, is an accepted doctrine. And the U.S. Securities and Exchange Commission, chaired by Christopher Cox, recently voted to file a brief in support of scheme liability in Stoneridge.

Before the SEC could file such a brief, however, the Bush administration asked them not to. Apparently, the federal government is weighing the possibility of siding with the defendants in Stoneridge, and not in defense of scheme liability. The deadline for amicus briefs is Wednesday.

It's not just the SEC and millions of Enron investors who back scheme liability. Dozens of state attorneys general have filed an amicus brief on behalf of the plaintiffs in Stoneridge, and U.S. Sen. Arlen Specter has personally prevailed upon President Bush to stand with the Enron investors on this important question.

In an Aug. 3 letter to the president, Sen. Specter expressed concern about the administration's legal position, noting that "the outcome of Stoneridge will determine whether tens of thousands of Enron investors will secure a day in court."I STILL REMEMBER vividly the day former Enron Chairman Ken Lay came out from the courthouse and quoted Romans 8: 28, "All things work together for good to those who love God."

Unfortunately, Mr. Lay forgot the most important part of that biblical verse: "All things work together for good to those who love God and who are called according to his purpose."

God's purpose is not and never has been to steal our hard-earned retirement, nor is it to deprive millions of Americans of the money they invested. The banks that made this fraud possible should be held accountable. Mr. President, please help us ensure that it happens.

BUDDY SCHWARTZ writes from Jonestown