UC will move this week for preliminary court approval of a settlement with certain of Enron's former directors in which the investor class will receive $168 million, consisting of $155 million in insurance proceeds and more than $13 million in personal contributions of insider trading proceeds by the directors. "This is a further significant step toward what we hope will be a substantial recovery for the investor victims of the Enron fraud," said James E. Holst, UC's general counsel. "It is especially significant that these outside directors were made to disgorge some of their insider trading proceeds." The agreement was reached on Oct. 6, 2004, with the assistance of mediator Eric D. Green of Resolutions LLC. Pursuant to the agreement, the $200-million remaining balance of Enron's directors and officers insurance policy has been paid into the registry of the court and the personal contributions of the directors, totaling more than $13 million, have been deposited in trust with class counsel, Lerach Coughlin Stoia Geller Rudman & Robbins LLP. Depositions in the case began in June 2004, with the trial slated to begin Oct. 16, 2006. Over the last three months, the plaintiffs, the settling defendants, the insurers and certain of the non-settling insured defendants have negotiated a complex agreement that provides a framework for court approval by setting aside $13 million of the insurance proceeds for the continuing defense of certain of the non-settling insured defendants in exchange for their agreement not to oppose the settlement. Of the remaining $187 million of insurance proceeds, 83 percent, or $155 million, goes to the plaintiff class of defrauded Enron securities purchasers. The balance, $32 million, goes to the Enron bankruptcy estate to be distributed to Enron's creditors. The combination of insurance and insider trading proceeds will provide $168 million for the class. The settlement exhausts all the remaining directors, and officers, liability insurance. There is no settlement with defendants Ken Lay, Jeff Skilling, Andrew Fastow, Richard Causey or Rick Buy. The settlement resolves the litigation against those Enron directors who faced liability under the strict liability provisions of Section 11 of the Securities Act of 1933, not the fraud provisions of Section 10(b) of the Securities Act of 1934. "It was important to reach this settlement to staunch the consumption of the directors, and officers, insurance by defense fees and obtain the money for the victims of the fraud ¬ not the lawyers for Enron's directors," said William Lerach of Lerach Coughlin Stoia Geller Rudman & Robbins LLP, lead counsel for the class. "The settlement is very significant in holding these outside directors at least partially personally responsible. Hopefully, this will help send a message to corporate boardrooms of the importance of directors performing their legal duties." The agreement marks the fourth settlement in the case, totaling almost one-half billion dollars already recovered for the class. UC reached a $222.5 million-settlement with Lehman Brothers in October 2004, a $69-million settlement with Bank of America in July 2004, and a $40-million settlement in July 2002 with Arthur Andersen's international umbrella organization that released Andersen Worldwide SC and its non-US member firms from liability and dismissed them from the suit. Arthur Andersen's US arm, which served as Enron's auditor, remains a defendant in the case. On Dec. 15, 2004, a unanimous three-judge panel of the US Court of Appeals for the Fifth Circuit, sitting in New Orleans, upheld the Anderson Worldwide SC settlement. The settlement announced today (Friday) is subject to court approval. "We are continuing to prosecute the case against individuals and entities charged with participating in the fraud and we expect even more substantial recoveries from these defendants," said Lerach. The defendants in the shareholders' lawsuit include the financial institutions of JP Morgan Chase, Citigroup, Merrill Lynch, Credit Suisse First Boston, Canadian Imperial Bank of Commerce, Barclays Bank, Toronto-Dominion Bank and the Royal Bank of Scotland, all considered key players in a series of fraudulent transactions that ultimately cost Enron investors billions of dollars. Other defendants include various former officers of Enron, its accountants, Arthur Andersen, and two law firms. These banks set up false investments in clandestinely controlled Enron partnerships, used offshore companies to disguise loans and facilitated the phony sale of phantom Enron assets. As a result, Enron executives were able to deceive investors by reporting increased cash flow from operations and by moving billions of dollars of debt off their balance sheets, thereby artificially inflating securities prices. Unlike Lehman Brothers, Bank of America and the settling directors, the remaining bank defendants are potentially liable for Enron investors' entire loss. In February 2002, the University of California was named lead plaintiff in the Enron shareholders' class action suit previously filed against 29 top executives of Enron Corp. and its accounting firm, Arthur Andersen LLP. UC filed a consolidated complaint on April 8, 2002, adding nine banks and two law firms as defendants in the case. In April 2003, U.S. District Court Judge Melinda Harmon completed her rulings on the various defendants' motions to dismiss and lifted the stay on discovery. Following those rulings, UC filed a second amended complaint on May 14, 2003. Other institutional investors acting as representative plaintiffs on behalf of Enron investors include Washington State Investment Board, the UNITE Family of Funds, San Francisco City and County Employees' Retirement System, Employer-Teamsters Local Nos. 175 & 505 Pension Trust Fund, Hawaii Laborers Pension Plan, Greenville Plumbers Pension Plan, Archdiocese of Milwaukee and Staro Asset Management.