FOR IMMEDIATE RELEASE
QUESTIONS AND ANSWERS ON ENRON AND THE UNIVERSITY OF CALIFORNIA RETIREMENT PLAN
The University of California today (Friday, Dec. 21, 2001) joined a federal class-action lawsuit against 29 senior executives of the Enron Corp. and the international accounting firm of Arthur Andersen LLP. The suit was filed in the Federal District Court for the Southern District of Texas, in Houston.
Q. Did the University of California own stock in Enron?
A. Yes. At its peak, the highly diversified UC Retirement Plan owned $116 million in Enron stock in active portfolio investments and Enron shares in the university's passive index funds. Across all UC funds, the investment totaled $155 million.
Q. Was there a loss to UC's investment portfolio because of the plunge of Enron shares?
A. Yes. The aggregate total loss across the entire UC investment portfolio totals was approximately $144.7 million. Of that total, the loss the UC Retirement Fund's active portfolio, managed internally, is approximately $88 million. This change in value did not occur all at once. The position was marked to market daily over the entire 18-month holding period from the initial purchase in May 2000 to the final sales in late November 2001.
Q. That sounds like a lot of money. What does it mean to the university's investment picture and the retirement fund?
A. While $144.7 million is indeed a sizeable sum, it represents
approximately three-tenths of one percent (0.30 percent) of
the university's total investment funds. The retirement plan
is in what financial experts call "a strong overfunded
position" to meet its obligations to its beneficiaries.
The Enron stock plunge will not affect the retirement plan's
ability to meet its obligations. In fact, the total
retirement fund portfolio has grown by more than three
percent since Sept. 30, 2001.
A. There have been reports that Enron's stock was artificially inflated and that the company's officers concealed information about losses that may have given investors greater ability to evaluate Enron's stock. The University of California is participating in this class action lawsuit to recoup loss to its investment portfolio and to seek compensation for others, including Enron employees, who have been victimized by the actions of Enron's senior management. All investors in index funds such as the S&P 500, the Russell 3000 and the Wilshire 5000 would have been exposed to Enron stock as well.
Q. What does the lawsuit seek?
A. Among other things, the suit asks for "disgorgement" (refund) of defendants' $1.1 billion or more of insider-trading proceeds as well as compensatory damages.
Q. Does that mean the UC retirement system will recoup the $94 million loss?
A. The university's Office of the General Counsel and outside counsel, along with allied major plaintiffs, intend to wage a vigorous legal effort to recover the proceeds realized by senior Enron management through insider trading and concealment of Enron's true financial situation. The lawsuit will seek to recoup losses to UC's investment portfolios, including the UC retirement fund.
Q. Why isn't the lawsuit against the Enron Corp.?
A. Enron is in Chapter 11 bankruptcy proceedings.
Q. It seems that UC and others were taken completely by surprise -- how was this possible?
A. Along with other sophisticated institutional investors across the nation, UC relied upon Enron's official statements and material filed with regulatory agencies, audited by the Arthur Andersen accounting firm, prior to making investment decisions. It now appears that the material did not reflect the company's true financial position. Accordingly, UC and its fellow plaintiffs have gone to federal court to remedy the situation.
Send comments or questions
about this web site to one of the webmasters