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|  | NOVEMBER 9, 2005
By Steve Rosenbush Can Enron Pry Billions from Its Banks?[Page 2 of 2]FINANCIAL LEVERAGE. Enron's suits against the banks have created some controversy. Federal laws written in the 1930s provide a clear basis for shareholder suits. Enron's suits on behalf of the creditors rest on bankruptcy laws, which are subject to interpretation. "Some courts allow such suits, some don't," says attorney Bill Lerach, who won more than $7 billion in settlements for Enron's shareholders, none of which will be shared with unsecured creditors. WorldCom didn't sue its banks after it collapsed in bankruptcy, but Enron's case is unique. Its banks were deeply involved in its operations, which were based on a complex web of deals. JPMorgan, Citi, and other banks already have admitted wrongdoing and paid millions in fines in separate actions by the U.S. Securities & Exchange Commission. Several banks promised to change the way they do business, too. That history could strengthen Enron's hand as it chases settlements of its own. Enron has a certain amount of leverage against huge financial institutions like Citi, which is many times its size. "If the cases aren't settled, they'll eventually go to trial," Ray says. If that happens, the banks face the possibility of a nonjury trial in bankruptcy court -- a court designed to help rebuild failed companies. The banks could essentially find themselves at the mercy of the judge, who could order them to pay billions of dollars to the Enron estate, Lerach says. BOARD OF NEWCOMERS. The board has an unusual mandate, taking a big hand in managing the liquidation of the company's assets and prosecuting claims against the banks. The board, which has met 75 times this year, was selected 12 months ago by the creditors and the bankruptcy trustee. The members had nothing to do with Enron during the scandal. Ray, the only full-time director, is earning $1.2 million a year for his efforts. The 46-year-old attorney is head of Avidity Partners, a relatively small restructuring firm in the Chicago suburb of Wheaton. He's best known for winning $1 billion for creditors of bankrupt apparel maker Fruit of the Loom. In addition to Ray, the board includes Vice-Chairman Robert Deutschman, president of Cappello Partners in Santa Monica, Calif. Formerly, Deutschman was with Houlihan Lokey Howard & Zukin. He's being paid $420,000 for his services. The other directors include Dallas accountant Jim Latimer of Blackhill Advisors, who's also head of Explore Horizons, a private energy exploration and production company. He's on the audit committee of NGP Capital Resources, a financial-services company organized by Natural Gas Partners to invest in debt of small and midsize energy companies. Director Stephen Bennett of Frankfort, Ill., led the liquidation of Acme Metals. Director Richard Harrington of Scottsdale, Ariz., is a former senior vice-president of ConocoPhillips (COP ). All three are paid $300,000. EVIDENCE BUILDING. After a year of work, the new board is still stunned by the complexity of Enron's collapse. The liquidation is the financial equivalent of a toxic Superfund site. It involves thousands of suits and countersuits, with armies of lawyers fighting for access to Enron's vast archive of inscrutable documents. "The magnitude of this case is shocking," Ray says. Enron has created a massive operation to keep track of the evidence. That's absolutely crucial, because lawyers for the companies that Enron is suing can seek delays or dismissals by arguing that Enron has failed to share company records with them. Enron's library of documents is located in a complex of warehouses on the outskirts of Houston. The 3.3-acre site once housed the company's broadband-telecommunications unit. Huge warehouse rooms originally built to store telecom equipment are now filled floor to ceiling with crates of papers. The site currently houses 120,000 crates, and an additional 100,000 will eventually be shipped there. A team of 60 people fetch documents for opposing attorneys, who are allowed to review the papers in a special area but cannot wander about the warehouse. BANKING ON RESULTS. Enron lawyers figure out exactly which documents contain the requested information. The warehousemen fetch the color-coded crates from towering rows of shelves. Paralegals check the boxes to make sure the proper documents are actually inside. And clerks in a copy shop scan the information onto disks, print it out at high speed, and collate the pages in special binders. Despite these difficulties, the board could well help creditors walk away with more than just a penny or two on the dollar, as is common in many bankruptcies. A few factors are working in their favor. Most important, they have a good shot at wringing more money out of the banks.
 Rosenbush is a senior writer for BusinessWeek Online in New York Get BusinessWeek directly on your desktop with our RSS feeds.  Add BusinessWeek news to your Web site with our headline feed. Click to buy an e-print or reprint of a BusinessWeek or BusinessWeek Online story or video. To subscribe online to BusinessWeek magazine, please click here. Learn more, go to the BusinessWeekOnline home page  | | |
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