Enron Execs Earned $600 Million
From Stock In Last Four Years
By Nelson Antosh and Tom Fowler
Copyright 2001

Enron Corp. executives and directors earned nearly $600 million from selling company stock over the past four years, with many individuals topping $12 million in the past year alone, according to trading data.
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The profits from those stock sales are at the heart of a lawsuit filed earlier this week against 29 Enron current and former executives and directors.
The plaintiff, New York-based Amalgamated Bank, alleges that the executives and directors knew the value of Enron's stock was overinflated and would eventually fall but did not share that information publicly with other shareholders.
The union-owned Amalgamated Bank manages pension funds that hold Enron stock.
Bill Lerach, of the law firm Milberg Weiss Bershad Haynes & Lerach, and the lead attorney, suggested Friday during a hearing on the lawsuit in Houston federal court that the defendants could flee the country with their millions of dollars in stock sale profits.
He also called flight risk a "more than academic possibility" and asked the court to freeze the defendants' assets.
According to trading data provided by Thomson Financial/First Call:
* Lou Pai, the former chairman of Enron Energy Services, netted the most from his stock sales so far this year, earning $33.6 million by selling more than 911,000 shares.
* Chairman and Chief Executive Officer Ken Lay ranked second for the 2001 stock sales earnings, with $16.1 million from 491,000 shares sold.
* Former CEO Jeff Skilling earned $15.5 million by selling 240,000 shares.
* Ken Rice, the former head of Enron Broadband, earned $14.7 million from selling 656,000 shares.
* Andy Fastow, the former CFO many have blamed for the complicated financial partnership that led to the current troubles, didn't sell any shares of stock this year and was the only company insider to buy Enron stock on the open market in 2001. On Aug. 16, he purchased 10,000 shares at $36.98, a transaction that cost him $369,800.
U.S. District Judge Lee Rosenthal questioned whether her court had the authority to freeze the funds, however, and gave attorneys from both sides until Dec. 19 to file their arguments.
Though the lawsuit is trying to raise an issue about the stock sales, it is normal for executives to regularly sell company stock given as part of their compensation package, said John Coffee, a securities law professor at Columbia Law School.
It becomes questionable, however, when executives sell off the majority of their shares in a short period of time, what Coffee calls a "bailout."
Attorneys for the defendants say the stock sales are not the smoking gun the plaintiff's claim. If they were true bailouts, the executives would have sold all their stock before it became worthless, the attorneys said.
Lay, for instance, sold only 24 percent of his shares, hanging onto the rest far after the company's stock fell below a price he could have profitably sold them for, his attorney said during the hearing.
Typically, executives are limited to selling their shares only during specific times, usually in a short window between earnings announcements.
But since last November, a number of Enron executives took advantage of a new rule that allows one to sell shares on a regular basis all year, as long as it is on a plan approved by securities regulators.
For instance, Lay used a plan where almost every day he would exercise rights to purchase a fixed number of shares of stock at a given price and sell that stock on the open market.
From Nov. 1 until early February 2001, Lay's daily transactions included about 4,000 shares per day, while from February to April that amount dropped to about 3,000.
Between May 1 and Aug. 21, the last day there is record of Lay selling shares, he exercised and sold 3,500 shares per day.
Rice sold 1,000 shares per day on the market until June of this year. After that, he sold a large number of shares on July 13, about 385,000 shares, for a little over $9 million. Rice left the company in late August.
Skilling regularly sold 10,000 shares a week.
Enron stock sales in the past year have not been completely worry-free, some analysts said.
For Paul Elliott, a senior analyst with Thomson Financial/First Call, the first red flag came early this year, when Enron insiders continued to sell their stock at the same, steady rate as the per-share value started to fall.
"Selling your stock into a powerful climb in price makes sense, but when they're still selling it when it goes lower and lower, you start to get nervous," Elliott said. "It makes you wonder if they knew that after they hit the peak that the stock was already expensive and wasn't going to go back up."
While the data for 2001 only goes through the end of August, it is unlikely the net value of insider stock sales this year would top those for 2000. Executives and others sold 8.5 million shares last year with a net value of $416.6 million. In 1999, 4.6 million shares were sold with a net value of $37 million.
Before the late 1990s, it was rare for energy companies to give stock options -- the right to purchase a stock at a fixed price, usually below the market price -- to their executives, Elliott said.
But as energy markets started to become deregulated and integrated companies like Enron, Dynegy and Calpine grew, stock options became a larger part of the executive compensation package.
"They started acting like tech companies, handing out the stock options, and the executives started acting like tech executives, cashing them in once they became vested," Elliott said.
At first, the money made from cashing in the options was staggering. But with so many companies seeing their stocks climb throughout the late 1990s, analysts and investors stopped being surprised and paid less attention. Henry Hu, a law professor at the University of Texas, notes that while U.S. laws take insider trading very seriously and impose stiff fines -- including 10 years in jail and fines up to three times the profits made on such trades -- plaintiff attorneys have a heavy burden of proof.
"Courts that are asked to grant this kind of injunctive relief tend to be skeptical unless you can show a really good reason for doing it," Hu said. "But if they don't freeze the assets, that doesn't mean the plaintiffs will lose their case, either."
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