UC System’s Role in Enron Suits Gets Murky

By AMANDA BRONSTAD

Staff Reporter

With a federal judge about to name a lead plaintiff in the numerous class action suits against Enron Corp., the University of California system, out $145 million in the massive collapse, finds itself at a crossroads.

Its counsel, Milberg Weiss Bershard Hynes & Lerach LLP, one of the premier law firms in shareholder suits, has acknowledged in published reports that it is the subject of a federal grand jury probe.

The revelation comes as Melinda Harmon, U.S. District Judge for the Southern District of Texas, in Houston, is expected to name the lead plaintiff in the Enron shareholder lawsuits within a week.

The UC system, with the second-largest shareholder loss, is well positioned to become lead plaintiff because the Florida State Board of Administration, which lost $306 million, is embroiled in a dispute with its money manager.

The role of lead plaintiff has a distinct advantage because its counsel drives litigation strategy. Also, the lead plaintiff often gets to select its legal counsel to direct consolidated suits.

UC spokesman Trey Davis dismissed news of the investigation, calling them “rumors,” but acknowledged the challenges to the university system if the investigation progresses.

“Milberg Weiss has indicated to us there is no merit to the rumors,” Davis said. “If something substantive emerged, UC would obviously re-evaluate the situation.”

Calls to the U.S. Attorney’s office in Los Angeles and to Milberg Weiss partner Bill Lerach, UC’s attorney, were not returned.

UC lost $145 million in pension fund and endowment money, second only to the Florida State Board, which recently combined its case with the New York City pension funds, which lost $109 million.

Word of the investigation comes at an unfortunate time, said Alan Cleveland, an attorney representing the New Hampshire Retirement System, a pension fund that lost money from Enron’s collapse but which has not filed suit against the company.

“It’s not often that the existence of a grand jury investigation gets leaked,” Cleveland said. “They’re obliged to keep it under wraps. The fact that stuff is leaking out is curious, particularly as the judge is ramping up for a lead plaintiff. If I were the University of California, I would be a little annoyed.”