Ten years ago today Enron, which was the US’s seventh largest company, filed for bankruptcy after a creatively planned accounting scam came to the fore.
Although the scandal led to imprisonment for the energy giant’s executives, the collapse of its accountancy firm Arthur Andersen and widespread financial turmoil, it proved to be a substantial money-spinner for the stream of international law firms involved. Individual lawyers also benefitted, seeing lucrative moves, promotions and six-figure salaries as a result of the litigation feeding frenzy.
Enron’s epic fall from grace inevitably led to drawn-out litigation and class action suits. The lawsuit brought by Enron’s shareholders against banks they alleged helped the company commit fraud only came to an end eight years after Enron first filed for bankruptcy.
In the UK, Linklaters scooped the leading role as adviser to Enron’s administrators PricewaterhouseCoopers (PwC) after having originally been drafted in by Enron to work on the European aspects of its aborted merger with rival energy company Dynergy (26 November 2002).
Linklaters partner Tony Bugg, who is still at the firm, led the team that advised PwC. Bugg picked up the same role seven years later when Lehman Brothers collapsed (15 September 2009).
Meanwhile, Ashurst, then Ashurst Morris Crisp, advised Centrica on its £94m acquisition of Enron Direct, which served clients in the small and medium-sized enterprise sectors (17 December 2001). The deal was completed in just four days with partner Michael Johns leading a four-partner team on the acquisition. Johns retired in 2009.
Allen & Overy also landed a substantial role, advising several major creditors including Abbey National and ABN Amro.
White-collar crime specialist Oury Clark advised shareholders on both sides of the Atlantic at a greatly reduced rate (8 April 2002). The firm went on to represent a group or survivors and relatives of victims of London’s 7 July 2005 bombings (16 August 2007).
Bread and butter
Stateside, most US national firms got a look-in with the ensuing litigation proving to be the bread and butter of a number of firms for years to come. At one stage, Enron was reportedly paying $8m (£5.7m) in legal fees per month (4 March 2002).
Bagging one of the most lucrative roles was Weil Gotshal & Manges, which was drafted in by Enron to lead on its restructuring.
The firm replaced Enron’s Houston-based longstanding adviser Vinson & Elkins, which settled to the tune of $30m after being hit with litigation by unsecured creditors over its alleged role in the company’s collapse (12 June 2006).
Millbank Tweed Hadley & McCloy was instructed to act as legal adviser to the creditors’ committee while Skadden Arps Slate Meagher & Flom, Fried Frank, Shearman & Sterling and Davis Polk & Wardwell were among the Wall Street big-hitters linked to Enron (4 February 2002).
Chief Enron prosecutors became household names and have since been deluged by job offers from top law firms.
Sean Berkowitz headed the Department of Justice’s task force into Enron and successfully prosecuted the energy giant’s CEO and chairman. He was lured into private practice in 2006.
Joining Latham & Watkins in Chicago as a litigation partner, he told The Lawyer that he hoped to be known for more than Enron in 20 years’ time (3 November 2006).
Latham secured another prominent Enron prosecutor in the shape of Kathryn Reummler, the youngest member of the 10-lawyer Enron task force, three months later (2 February 2007).
Berkowitz has moved up the ranks, becoming global chair of the firm’s litigation department, while Reummler now serves as White House counsel to President Barack Obama.
Other Enron prosecutors to have joined private practice include Berkowitz’s task force predecessors Leslie Caldwell and Andrew Weissman, who went to Morgan Lewis & Bockius and Jenner & Block respectively.
John Hueston, the lead prosecutor in the Enron trial, is now a litigation partner at Irell & Manella, having been named as one of 25 people who shaped the face of business in 2006 by America’s Fortune magazine.
Enron’s collapse was, at the time, the largest bankruptcy in US history. It saw 21,000 staff in more than 40 countries lose their jobs and wipe $60 billion market value.
It also led to the dissolution of Arthur Andersen, which failed to pick up on the cooked books during internal audits.
The legacy firm’s top executives chairman Ken Lay, CEO Jeffrey Skilling and chief financial officer Andy Fastow soon became household names and the ‘Enron Scandal’ went down in the history books as a popular symbol of fraud and corruption in corporate America.
Skillings and Fastow received a sentence of 24 years and six years respectively. Lay died of a heart attack in 2006, a few months before his sentence was due to be handed down.
Two former Enron in-house lawyers, Jordan Mintz and Rex Rogers, were also charged with misrepresenting deals in the defunct firm’s accounting.