Tony, didn't Enron offer employees ONLY company stock as a match for their 401(k) contributions, and furthermore, set rules that the stock could not be sold until the employee was aged 50? Also, IIRC, Enron restated their earnings in early November 2001, during a period when those employees who were eligible were prevented from shifting 401(k) money out of company stock due to a change in plan administrators. Now, people can argue about their timing of these two events, but it has also been reported that CEO Kenneth Lay appeared before Enron employees as late as October 2001 and exhorted them to keep their faith (and their bucks) in Enron stock, AFTER he had been briefed about the impending income restatements. This appears to this humble reader as fraud, plain and simple. Does this mean that every Enron employee should be labeled as incompetent about retirement planning, since they sought to maximize their return by utilizing company matching funds?

I agree that the ambulance-chasing is getting out of hand. But I think it's important to realize that those weepy Enron workers you see on 60 Minutes were doing the exact same thing that MILLIONS of current 401(k) contributors still are.

Ric

Ric,
The company provided Enron stock as a match, but employees were not required to purchase Enron stock in order to receive the match. The match was, in effect, a bonus from the company. Employees were free to sell at any time the Enron stock that they purchased; the age 50 rule applied to matching stock provided by the company.

As for the timing of the lockdown, Enron's stock drifted from a close of $86.44 per share on October 2, 2000 to $30.61 per share one year later and, depending on whose account you believe, anywhere from two weeks to three weeks before the lockdown. Enron employees had been receiving, in short, ample market signals for over a year that diversification might be prudent.

I’ve been reading you site for the better part of two weeks. I was really touched by your post about losing you daughter (it was linked by sassasfras) and I kept coming back to listen and learn. You seem like a smart guy, and while I generally disagree with most of your opinions (I’m one of those people you seem to call out as ruining the country), I do my best to understand, and interject, maybe even soften your opinions from time to time. You generally formalize a good argument, which is important. I may be a lefty but I like George Will and a couple of others because of that quality.

Your rants are 180 degrees from my position, but a man has to have a right to rant. I think I now regret the JB quote in a previous post (and the bad grammar too). While you’ve had some good points IMHO in other posts, this latest post is way off the mark. I’m probably not alone because I’ve noticed most of your previous posts; they have plenty of your readers giving you the thumbs up with their own posts and cheering you on. This one has a total of two (this being three), and one of those posts is your own. It just seems like your trotting out the same old conservative ideology and not looking around at what’s going on here.

“The court has already approved $22 million in payments to laid-off workers, but each person could get only $4,650 because of a cap set in place by bankruptcy law -- far below what some employees said they are owed. " - Quoted from the linked article in Washington Post

If you read the article you had posted, and had some more working knowledge of the situation, you would know that WorldCom hired these former employees under the agreement that if they were to be laid off, Worldcom would compensate them with X amount. However since the company is in bankruptcy, Worldcom is somehow exonerated from their responsibility.

The management and employees fail to create value.

If the failure of a good work ethic by the employees of Worldcom were really to blame for this collapse I might be more aggravated with the lawsuit and more empathetic to your post. However your attempt to co-op the employees with the management in the failure of Worldcom isn't just presumptuous, it's flat out wrong.

It’s a well known fact that the reason for the company’s failure was because of some fudging of the books by some accountants, namely Scott Sullivan CFO. These thieves were newly empowered with deregulation based on the accounting act passed in 1995 by the likes of Billy Tauzin R-LA and every conservative’s least hated Democrat Joe Lieberman D-CT (typical conservative mantra including SitG: government oversight always equals bad). They managed to hide $3.8 Billion in expenses over the course of more than 5 years of audits, only to have their house of cards topple over in the past few months. That is why Worldcom is now in bankruptcy.

To somehow accuse John the now unemployed IT Department head and Cindy the operator is a low blow. Those people don't have access to the sensitive financial information that undid Worldcom. How are they responsible for foolish investing, or anyone else for that matter, when they are being told “This company is profitable”? Someone lied! So many of you guys spent eight years yelling at Slick Willy for, among other things, lying. Now that the shoes on the other foot, and the best you can do is have Steve “My Daddy was rich there for you should elect me president” Forbes calling lying “cheerleading the market” and saying it’s your own fault for not diversifying enough! Last time I checked lying and stealing were two of the Ten Commandments. You talk about loving Jesus frequently on your site, it may not hurt if you emphasize a little more of his teachings. I won’t speak for God or anyone else, but I have a hard time believing Jesus would agree with you for trying to pin the blame on the employees when they and every other investor was robbed.

What are you not seeing here? When you say “thousands of investors loan Worldcom money” it sounds like investors all gave them that money in one fell swoop, but that’s not true. Worldcom wasn’t growing internally, they were buying other companies in order to grow. Every time Worldcom would acquire another entity they would take out a loan to purchase it. That loan would be rated based on their financial standing, which as you might remember, they just so happened to be lying about. The accountants would look at Wall Streets expectations and work backwards, so their profit reports looked like Worldcom had met WS’s expectations, compounding the lie year after year. When the lie was finally exposed the whole thing collapsed like a house of cards. That’s why Worldcom failed, not bad employees or bad investors, but because of not just bad, criminal management.

“The people with the greatest access to knowledge about the state of their company, and some amount of responsibility for its failure, find it unjust that they were not allowed to unload their worthless stock, which they freely chose to purchase, on the rest of us before it bottomed out."

You have the audacity to point the finger at the employees? Most of the people in this lawsuit probably never saw a single financial figure. I guess that’s their fault for not rooting around in the accounting department and having private investigators look into some of the phony profit reports being passed off as fact?

People who worked 60-70 hours a week at Enron, people who helped to make that company what it was were shafted completely when the stock collapsed. In reference to Ric and your response I’m not fully aware of the situation with the stock, when you could sell. I do know that employees trusted management at Enron, and held on to their stock because those same people were saying “We’re all are gonna laugh when this is over, when the stock bounces back, ha,ha,ha ” The same executives that were chanting “hold” were selling their own as fast as they could. The initial free fall post Jan 2000 was indicative of the entire market as a whole, not just Enron, so its somewhat understandable that these people might hold onto their stock. But for a company stock value to go from $30 a share to pennies? People who were less than a year from retirement had their 401K go from a $.5 million to $13,000, and then lose their job to top it off. They were frozen out on the last $30 to less than $1.00 slide, and you blame the employees for the failure when it was the ridiculous back room deals and off the book partnerships executives were making? Shame on you

“when it comes time to decide who will suffer most and least, does it make sense for the people most responsible for the failure to incur the least financial pain?”

That’s exactly what is happening, the people most responsible for the failure are experiencing the least pain, if you consider living in luxury the least pain. Former CFO Mr. Sullivan of Worldcom? He’s hurting so much that he’s busy building a $15 million dollar home in Florida. Ken Lay? Sitting pretty somewhere in Texas. He was forced to sell all but one of his luxury homes (sob sob!) in Aspen Colorado. Poor old Kenny boy. Skilling, Fastow, and other executives are all still living off the killer bonuses they took from the company. If you remember, a handful of executives who knew what was coming down the pike raped the company’s coffers because they knew that the cash would not be there after the day of reckoning. Money that might have gone to a decent severance package for laid off Enron employees, but will instead most probably wind up their bank accounts and in the hands of lawyers when the aforementioned crooks assemble their legal defense team. Hey, let’s all cry a collective tear for corporate America now, shall we?

By the way, before the accounting act of 1995 there were less than 10 corporate profit restatements a year. Afterwards it more like 40-50, I can’t even remember how many. Can bureaucracy be a pain in the ass, slow as molasses or very inefficient? Yes on all counts. But at least it doesn’t steal billions of dollars from investors, taxpayers, employees and put that money in an offshore account. There are worse alternatives to government oversight. You’re looking at it.

You can see me butcher the english langauge on my own blog, The Blowtorch Money Armada. Looking forward to your response.

For someone who thinks prevaricating a sin, Palmer Haas sure indulges in it a lot. For instance, he completely misrepresents the Private Securities Litigation Reform Act of 1995 (along with the Odd Couple of Paul Krugman and Ben Stein). That Act merely put an end to the "strike price lawsuits" that were making planitiff attorneys like Bill Lerach wealthy at the expense of entrepreneurial company shareholders.

For the facts see: http://securities.stanford.edu/

Where Stanford Law School kept the score. There were just as many lawsuits in the five years following the passage of the PSLRA as there were in the previous five, and "The dollar magnitude of settlement has increased noticeably".

As to who is responsible for fraud, how about the Enron employees who participated in the Potemkin Village trading room which famously duped Paul Krugman (him again!)?

BTW, anyone who is a year away from retirement is an idiot to have most of their portfolio in equities of any kind, much less in one company.

Finally, the Enron employees with 401Ks saw their Enron stock go from about $15 to $9 in the short "lock down" period necessitated by changing plan administrators. And those employees had several warnings that the "lock down" was going to happen.

As one who has lots of Worldcom stock, I think I have only myself to blame for the wretched remaining value. My only hope is that Worldcom emerges and somehow the stock becomes worth a portion of what I paid for it.

However, employees need to understand we are in this together. A healthy Worldcom will need staff. A Worldcom battling lawsuits won't have the resources to pay employees. Only a healthy WCOM will provide employment and a chance at increasing stock price.

To Palmer's note, I find no evidence of employment contracts with rank and file Worldcom employees that entitle them to severance (unlike the common practice with executives). Although severance is common practice, unless it is in an employment agreement, you get what you get. Does such a document exist for these employees?

As far as the competence of Worldcom employees and their contribution to the problem, you obviously haven't been a Worldcom customer of any size.

Palmer states: It’s a well known fact that the reason for the company’s failure was because of some fudging of the books by some accountants. Now I would submit you have grossly oversimplified things. The telecom sector has been destroyed. Decimated. Many companies are gone. Many employees are out of work. The outlook isn't good for a couple of years. Clearly, cheating with financials didn't help things and if convicted, I hope those guilty do time and lose their assets. But to say the company failed simply because of this ignores the huge cloud above Qwest and others.

As far as your last comment about stealing money from me, the gross incompetence with which my tax dollars are spent YEAR AFTER YEAR through pork barrel spending and incompetent oversight in their own backyard has cost me and you alot more than my losses in Worldcom. Let's see, there is a long list of Clinton's incompetence starting with his handling of Al Quaida that cost people not their jobs, but their LIVES. Now Clinton makes $150k/"speech", enjoys round the clock protection, and is pandered to in the press. Throw the guilty cheaters in jail. ALL OF THEM!

As much as you'd like to believe I was prevaricating, I'm more guilty of plain old flubbing, my apologies. Mr. Sullivan, you are correct on the count of the Private Securities Litigation Reform Act of 1995, it had nothing to do with deregulation. A mistake on my part. However an act of another name was passed in Congress, effectively deregulating the accounting industry. I have to do some research on what it's called, and when I find it I will post it. That doesn't change the fact that there is bill by another name that deregulated and is partly, if not mostly to blame for this mess.

Potemkin Village? I don't know much about it. You mean to tell me every single employee got in on that deal? How many? Half? A quarter, ten? Therefore all the employees should be screwed?

As far as Steve's point the telecommunications industry has taken a hit. However take a look and AT&T, Nextel, all those in the industry that have had a major stock plunge. Some have fallen 60 to 80% from the highs of 1999. However Worldcom is unique, the stock is worth $0.13 cents because of the bankruptcy and fraud. The reason they are in bankruptcy is because they are so deeply in debt that they owe millions to creditors, the ones that continually loaned Worldcom $ to buy other telecommunication companies. None of the other telecom giants are as deep in the doo-doo as Worldcom because they haven't lied, or rather they haven't been caught lying. I don't know how you can blame yourself unless your name is Scott Sullivan.

You're right on the count that suing your employer for fraud is in fact counterproductive and hurts everybody in the end, employee and shareholder alike. But when you see the government doing squat to keep these guys in line and hundreds of executives swimming in cash, what do you do? I have a hell of a lot more sympathy for those employees than management. Bernie Evers will never see the inside of a jail cell, hardly anyone is going to jail.

It should also be noted that it is politicians, not bureaus, that allocate pork barrel spending. Plenty of people who repeatedly advocate fiscal conservative policy can frequently be seen double dipping in the cookie jar when a business associate or campaign contributor back home needs a bailout.

As far as people to blame for letting Al Qaeda strike, there is a very long list (including Clinton) that can be blamed, but let's save that for another post.