January 8, 2005
Limited Funding for Former Enron Executive Defense Costs
A settlement of claims by Enron shareholders and securities purchasers announced yesterday includes an interesting provision that will affect, among others, Ken Lay and Jeffrey Skilling as they prepare for a long-term criminal trial later this year. As reported in an article in the Houston Chronicle (Jan. 7), the $200 million available from Enron's Directors & Officers insurance policy will be apportioned to pay a part of the settlement, and $13 million will be set aside to pay the defense costs of Enron executives. According to the story, "Of the $200 million in insurance available for the settlements, $13 million was set aside for the continuing defense of defendants that did not settle, which includes individuals like former Enron Chairman Ken Lay and former CEO Jeff Skilling. That set-aside was needed to assure they would not block the settlement. Of the remaining insurance proceeds, $155 million goes to former Enron shareholders, and $32 million goes to the Enron bankruptcy estate to be distributed to Enron's creditors."
Corporations usually agree to indemnify their directors and officers for the costs of defending against civil, criminal, and administrative actions, and D&O insurance is universal among public companies. The policies have been used to pay at least a portion of the costs of the defense of various officers and directors in recent high profile trials, including Dennis Kozlowski (Tyco), and Martha Stewart has sought payment of at least some of her defense costs related to the securities fraud charge that was dismissed during her trial. Given the complexity of the charges against Lay and Skilling, and the probable length of the trial, it is unlikely $13 million will cover a significant portion of their legal bills. Each has substantial personal resources, although even if there is an acquittal, it is unlikely they could recover the costs from the shell of Enron or in a Hyde Amendment claim. (ph)
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