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Who should run the Enron Corp.? After weeks of eyebrow-raising reports of managerial sleight of hand at Houston-based Enron, a group of shareholders and a group of energy companies are trying to wrest control of day-to-day operations from the bankrupt company. The two groups have asked the judge overseeing Enron’s historic bankruptcy to name an independent trustee to take the reins. The appointment would empower the trustee to shape the future of the company by, among other things, selling off assets, renegotiating leases, and ultimately determining whether the company remains a going concern or liquidates. And because a trustee almost always retains new counsel, he or she would probably oust New York-based Weil, Gotshal & Manges — Enron’s bankruptcy counsel — from its role as a lead player in the unfolding financial drama. A hearing on the motions is set for Feb. 20 before U.S. Bankruptcy Judge Arthur Gonzalez of the Southern District of New York. A trustee “would effectively replace the board of directors and the CEO of Enron,” decisively shifting power away from the company and towards its creditors, says Lynn Lopucki, a professor at the University of California at Los Angeles School of Law. Bankruptcy experts say it is unusual for a judge to resort to such a drastic move. The fact that Kenneth Lay, Enron’s one-time CEO, no longer has any connection to the company and that well-respected workout specialist Stephen Cooper has replaced him as interim CEO makes the appointment of a trustee less likely, they say, though not unimaginable. Weil Gotshal partner Martin Bienenstock, who is leading the firm’s Enron efforts, dismisses the motions filed last month as “tactical” maneuvers for the filers to achieve ends unrelated to the appointment of a trustee. HIDDEN AGENDA? The U.S. Bankruptcy Code allows a judge to appoint a trustee in cases when there is evidence of fraud, managerial misconduct, or gross neglect. From the perspective of the two groups that filed the motions in the Enron case, there’s ample evidence to support such an appointment. “Enron officials may have been systematically destroying Enron estate property throughout the bankruptcy proceedings,” the shareholders’ motion states. “Perhaps in no other case is the appointment of a trustee more necessary,” it concludes. “The creditors almost never choose to keep the same people as the corporation. That will be true even if there is someone they have no objection to, such as a turn-around manager,” Lopucki says. The motion filed by the so-called trading partners, a group of nine companies that do business with an Enron subsidiary, the Enron North America Corp., calls for a trustee to be appointed to Enron N.A. Bienenstock says his side’s view is that the trading partners “are trying to pressure us to agree to a separate creditors’ committee for Enron North America. I’m just guessing, but it looks to us that what they’re saying is, ‘We’re going to keep pressuring you until you agree.’” Charles Panzer, a Newark, N.J.-based partner at Reed Smith and counsel to the trading partners, acknowledges that his clients “would like to see another committee appointed.” A trustee and a separate creditors’ committee “each would provide protections to creditors of Enron North America, but they are two separate issues,” he says. Bienenstock chalks up the other motion for a trustee, filed by New York-based securities class action powerhouse Milberg Weiss Bershad Hynes & Lerach on behalf of institutional investors Regents of the University of California and the Absolute Recovery Hedge Fund, to the firm’s bid to be named lead counsel in the pending securities fraud class action filed against Enron in Houston federal court. Parties in the class action can’t conduct discovery for six months. If Milberg Weiss can take some discovery in the bankruptcy proceedings, it could give the firm a leg up in the class action, Bienenstock suggests. More than 60 separate plaintiffs’ groups have filed thus far in Houston, and Milberg Weiss’ clients, though significant institutional investors, did not suffer the greatest losses. The Regents, for example, lost about $144 million, while the combined losses of the Florida and New York pension funds, represented by other counsel, are $430 million. The amount of alleged damages is one of the key factors for courts considering which plaintiff should be named the lead. Additional motivation for Milberg Weiss may be that its involvement in the bankruptcy sets it apart from the raft of firms maneuvering for lead counsel status in the class action, raising its profile and perhaps enhancing its chances of being selected, Bienenstock adds. Name partner Melvyn Weiss, who is representing the Regents and the Absolute Recovery Hedge Fund in the bankruptcy, did not respond to calls by press time. A NEW CHAPTER Judge Gonzalez does not have a discernable pattern of appointing trustees. But then, motions for trustee appointments are rare enough that he may not have had many opportunities to consider them, notes Matthew Feldman, a bankruptcy partner in New York’s Willkie, Farr & Gallagher who is not involved in the Enron matter. A factor that may make Gonzalez reluctant to name a trustee is the elevation of Stephen Cooper to the top job at Enron. On Jan. 29, a week after the two creditors’ groups filed motions for a trustee, the company’s board of directors and the committee of unsecured creditors announced the selection of Cooper, managing partner of corporate recovery and crisis firm Zolfo Cooper and a man with no previous connection to Enron. Had Cooper not been named, it seemed there “were pretty good grounds for appointing a trustee,” says Michael Baxter, a bankruptcy partner in Washington, D.C.’s Covington & Burling. As a reorganization expert brought in to steer Enron through Chapter 11, Cooper essentially is already playing the role a trustee appointed by the bankruptcy court would fill. Nevertheless, the hedge fund and the California Regents, anticipating Enron’s decision to bring on a new CEO, made clear in their motion that such a move would not assuage their fears. “There are reports of a proposal of a restructuring officer,” one motion reads. “This does not cure the separate necessity for an independent transfer whose duties run to the court and creditors.”

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