Talks to Settle Suit Against Enron, Others Fail

Talks to settle civil litigation against Enron Corp., its former auditor Arthur Andersen and others involved in the Enron debacle collapsed Wednesday, with the court-appointed mediator saying the parties had reached an impasse.

Eric Green, a Boston University law professor appointed March 22 to mediate the case, telephoned U.S. District Judge Melinda Harmon in Houston to say he was terminating his efforts. Green declined to make a public statement.

“The possibility of a settlement with Arthur Andersen presented many complicated and interconnected issues that required the agreement of numerous parties,” said Trey Davis, spokesman for the University of California Board of Regents, the lead plaintiff in the class-action lawsuit.

“Despite our extensive efforts, in the end these simply could not be worked out.

“Without their resolution, any settlement would have worked to the detriment of the class,” Davis said.

The talks were aimed at settling a class-action lawsuit in which Enron investors and employees claimed they lost billions of dollars in the Houston energy trader’s collapse. The plaintiffs allege that the company and its auditor misled investors by artificially inflating profits through off-the-books partnerships and faulty accounting.

With mediation breaking down, the case is expected to move forward, with depositions this summer of financiers and banks accused of aiding efforts of Enron executives to conceal debt and inflate profits.

Although Andersen had agreed to put up $300 million to settle the case, other issues blocked an agreement, according to people familiar with the negotiations.

One of the chief stumbling blocks, according to one source, was the insistence by creditors in Enron’s bankruptcy on collecting $150 million of Andersen’s settlement payment for themselves.

Other parties believed that reserving half of the cash was far too generous considering the losses suffered by Enron’s shareholders. A source familiar with the talks said that a settlement might have been reached if the financial creditors--mostly banks and investment banks--had been willing to accept $40 million to $50 million.

Another complicating factor was that several of the financial creditors provided investment banking and other services to Enron and also are defendants in the class-action lawsuit.

That created a dispute over whether Andersen’s offer of $300 million would have capped the amount the banks and investment banks would have to pay to settle the class-action case. Attorneys representing the shareholders wanted these other defendants to sign waivers agreeing that Andersen’s payment would not set a baseline for their potential liabilities.

A source familiar with the mediation effort said some of the banks agreed to the waiver, but others refused.

Green oversaw talks last year between federal prosecutors and Microsoft Corp. that eventually led to a settlement of the Justice Department’s antitrust case against the software maker. Nine states are still pursuing claims against the company.