Statement of Deborah G. Perrotta, Former Senior Administrative Assistant, Enron Corporation, Houston, Texas
Testimony Before the Subcommittee on Oversight
of the House Committee on Ways and Means
Hearing on Employee and Employer Views on Retirement Security
March 5, 2002
Good afternoon, Mr. Chairman, and distinguished members of the Committee. Thank you for giving me the opportunity to come here today to share personal insights into the financial impact Enron’s demise has had on my family, former employees, pensioners and shareholders.
My name is Deborah Perrotta, and I am a former Enron employee that was involuntarily laid off on December 5, 2001 along with nearly 6 thousand others. I was employed by Enron from January 1998 to December 2001 as a Sr. Administrative Assistant. During that time, I worked for Enron International, Enron Engineering and Construction Company and Enron Energy Services.
Due to the accounting practices, lack of ethics and weak legislation coupled with Enron’s freezing of our 401k plans, I and thousands of others lost our jobs and the resources we had to fund our retirements. Because I was contemplating retiring at the age of 58, I increased my deductions because I believed Enron was secure, since Arthur Anderson, analysts, management and the investment community routinely validated it.
My personal loss from Enron’s 401k was approximately U.S. $40,000. I started investing in the plan in June of 1999. In June of 2000 my account was over $21,000, by September of the same year it grew to over $34,000. In December of 2000, I was awarded a bonus of U.S. $5,300, which I also elected to put in Enron’s individual stock plan. I chose the stock award plan because I believed it was in my family’s best interests to reinvest in Enron stock based upon the continued confidence of Wall Street and management’s projections of future growth and profitability.
Due to past adversity in our life our retirement funds were not going to be sufficient, so when I came to Enron we believed that we finally had a chance to rebuild our retirement funds. We had total faith in the board, CEO, and leadership team. Little did we know that they were inflating revenues and the stock price to increase their bonuses and that our board lacked the integrity to ask the right questions and protect the shareholders, employees and investors from fraud. By September of 2001, my 401k funds went from $39,000 to a little over $6,000.
Let me take a moment to paint a picture of why everyone was excited about Enron and it’s stock.
It was a dynamic and exciting place to work. They had an unbelievable reputation and were known for innovation and hiring the best of the best. Every one gave 110 percent to the company that is why we were able to grow so quickly. Or so we thought!
There was an atmosphere of great pride, trust, and respect for the management and Enron’s invincibility. I was ecstatic to be associated with a winner, whose mission as defined by Mr. Skilling was to be “The World’s Leading Company.” If you doubted it, you only had to attend an employee meeting and read our literature to have any of your doubts removed. We felt great optimism, security, and confidence about the company’s future.
In early 2001, Jeff Skilling was named CEO. Soon after, he held an all employee meeting in February, where he touted that the stock was undervalued and by year-end would be valued at $120.00 a share. On August 14, 2001, after only 7 months, Mr. Skilling resigned. As a result, Mr. Lay reassumed the Chairman and CEO position. Within days, he held an employee meeting and assured employees that Enron’s value and reputation would be restored. He said, and I quote, that “the business model has never been stronger” and that it was only a question of transparencies that would renew investor confidence. He was going to focus his attention on helping the analysts understand how we made money.
Mr. Lay followed up that meeting with an e-mail dated 08/27/01, giving employees shares valued at $36.88 per share. In the memo he said, and I quote, “as I mentioned at the employee meeting, one of my highest priorities is to restore investor confidence in Enron. This should result in a significantly higher stock price. I hope this grant lets you know how valued you are to Enron. I ask your continued help and support as we work together to achieve this goal.” From this memo, many others and I were encouraged, since he was a seasoned, respected, and influential executive with great integrity and respect. In fact, he personally wrote the company’s values. Today, I look back and feel so ashamed to have accepted his idea of respect and integrity!
In September we were notified that the company was changing saving plan administrators, and the last date for any investment fund balance changes would be October 26, 2001. The notice stated that certain kinds of fund transactions would not be possible after October 19, 2001. Finally, the notice said that the transition period would end on November 20th. I have heard that in Oregon 401-k participants may have been locked out earlier.
Two or three days prior to the change in plan administrators Enron took a $1.2 billion write down. In retrospect they knew about the issues and concerns of Sharon Watkins and yet they still locked the employees in without any chance to salvage what was left. They could have canceled this process but they chained us to the sinking ship while they were able to exercise their options during the three-week blackout period.
During this period of the lockout Enron's stock price fell by more than 50% -- from $15.40 at the close on October 26 to $7.00 at the close on November 20. However, while we had to wait during the blackout period, our leadership had the ability to move their stock. This is terrible, what is good for the goose should be good for the gander. However at Enron the gander got rich and we had our goose cooked.
To compound the situation on November 14, an e-mail was circulated stating that a new plan website was up. However the email did not say that we could now make investment fund balance changes. This in fact may have caused people to lose additional value in their 401K.
A poll of 482 former employees/shareholders taken on January 28, 2002 showed a sum of $363 million dollars was lost from their 401k accounts. Five of my friends’ total losses combined exceeded $6 million. This may sound like these were rich people, but this was money that they were planning to live off in retirement. For my friends in their fifties, this money simply cannot be replaced.
Less than two weeks after the freeze ended, Enron filed for bankruptcy on Sunday, December 2, 2001. While many of us were suffering financially and emotionally, Enron wired $55 million in retention bonuses to a select few two days prior to the filing. But I have seen nothing about the people who were paid these bonuses having to sign any contract committing them to stay at Enron. How is it that the bankruptcy court, board, and our leadership team could compound the situation by not protecting either the money or the intellectual capital through some form of penalty for leaving? And of course those of us who were laid off had our severance checks frozen because we were laid off a day after the bankruptcy filing. We are now fighting in court to get the severance thousands of us desperately need, while some of the very people who got the bonuses are paying Wall Street lawyers to stop us from getting the money they promised us – money thousands of us need to pay rent, health insurance and other necessities.
It seems to me that at every turn the way the law works and the decisions Enron executives made combined to see that a handful of people got millions and thousands of people who worked to build Enron lost everything.
I and thousands of others lost the resources we had counted on to fund our retirements and feed our families. I’m not alone in my pain, I’m just one of the thousands of former employees and retirees, desperately looking for relief and eventual reform. I don’t enjoy coming here, but herein lies many lessons for the American worker, and it is imperative that you take the appropriate steps to correct the reforms necessary to protect the American family.
To do so, I recommend the following
It seems that there are too many loopholes for corporations to use the retirement laws to their advantage and not that of their employees. It scares me knowing that I only have a few years to try to increase my retirement funds. I do have a small retirement from my previous job, but by no means that would sustain my everyday living expenses. Right now it appears that I would have to heavily depend on my Social Security Benefits—which is guaranteed by the Federal Government.
It frightens me to know that there are efforts to privatize Social Security. I confess I haven’t given it much thought. But given what I and many others been through in the last few months, I am here to tell you that if there is not reform for the 401K plans, the privatization of Social Security would be a big HUGE mistake. Just like Enron, there is no telling what could happen to Social Security benefits if they were dependent on the ups and downs of the market.
The demise of Enron should clearly “send up a red flag” that there must be reform to the 401K plans and to keep the Social Security where it is now.
Don’t let the American workers faith in you be misguided as well. You are our last line of defense.
Thank you.