Washington, D.C., July 29, 2008 (LAWFUEL) – The Securities and Exchange Commission today charged Lou L. Pai, the former chairman and chief executive officer of Enron Energy Services (EES), a division of Enron Corp., with illegally selling hundreds of thousands of shares of Enron stock in May and June 2001 on the basis of material nonpublic information.
Without admitting or denying the allegations, Pai settled the SEC’s charges by agreeing to a five-year bar from serving as officer or director of a public company and payment of $30 million in disgorgement and prejudgment interest (including a $6 million offset based on his prior waiver of insurance coverage for the benefit of Enron investors) plus a $1.5 million penalty.
Linda Chatman Thomsen, Director of the SEC’s Division of Enforcement, said, “The Commission has never relented in pursuing fraud committed by Enron’s executives, and I am pleased that today’s settlement will add another $25.5 million to the Enron Fair Fund for the benefit of injured investors.”
Fredric D. Firestone, Associate Director of the SEC’s Division of Enforcement, added, “Today’s settlement represents one of the largest financial settlements with an individual for insider trading in the history of the SEC’s enforcement program. The Commission will continue to hold senior executives and corporate insiders accountable for illegally trading on the basis of material nonpublic information.”
The SEC’s complaint, filed in U.S. District Court for the Southern District of Texas, alleges that between May 18, 2001, and June 7, 2001, Pai sold 338,897 shares of Enron stock and exercised stock options that resulted in the sale of 572,818 shares to the open market. Before making these sales, Pai received material nonpublic information from EES successor management concerning certain financial and operational problems and substantial contract-related losses at EES. Had Enron reported EES’s contract-related losses in its Retail Energy Services segment, that segment would have shown a quarterly loss of at least $60 million, rather than a profit of $40 million as falsely reported in Enron’s Form 10-Q for the first quarter of 2001.
The Commission’s complaint further alleges that Pai avoided substantial losses from these sales when the price of Enron stock collapsed in the fall of 2001. Enron’s stock price averaged approximately $53.78 per share during the time of Pai’s sales, but closed at $0.40 on Dec. 3, 2001 – the day after Enron filed for Chapter 11 bankruptcy protection. By selling his Enron stock in May and June 2001 before the collapse of Enron’s share price, Pai avoided millions of dollars of losses.
Without admitting or denying the allegations, Pai consented to entry of a final judgment that permanently enjoins him from violating the antifraud provisions of the Securities and Exchange Act.