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SEC seeks to block $1.3 million contract of Enron CEO

The US Securities & Exchange Commission on Friday moved to block Enron Corp's deal to hire restructuring ace Steven Cooper as chief executive, saying the $1.3 million contract cast doubt over the fairness of the largest bankruptcy case in US history.

The SEC called the contract between Enron and Cooper "overreaching" and "inappropriate" in a Chapter 11 bankruptcy case, given the size of the CEO's salary and potential conflicts of interest raised by his connections to creditors on the committee shaping the reorganisation.

In papers filed with the US Bankruptcy Court for the Southern District of New York, the agency asked the court to block the current deal between Enron and Cooper, who was hired as interim CEO six days after the resignation of Kenneth Lay in late January. A hearing date to consider the SEC's request is planned for March 13.

The terms of Cooper's contract "cast doubt on the fairness on Enron's handling of its bankruptcy case and on the bankruptcy process as a whole," the SEC complained.

Among its objections, the SEC said the contract does not require Cooper to recuse himself from any dealings with former clients. The SEC said such requirements must be in place to avoid potential conflicts of interest.

Enron filed for Chapter 11 bankruptcy protection on December 2 following the collapse of the former energy trading giant over questions about its accounting and murky partnerships.

Cooper, a partner in the restructuring firm Zolfo Cooper, was brought in to reorganise Enron. Enron's board, in conjunction with a creditors committee, appointed Cooper who eventually signed a $1.3 million contract.

The SEC questioned the "propriety" of that deal, which also allows 15 associates to come on board at a salary of $864,000 each.

The agency also criticised Cooper's official work schedule, which requires him to put in 35 hours a week. That is five hours less than what the average employee works, the SEC charged. Enron dismissed 4,000 workers late last year, many of whom lost retirement funds.

In addition, the SEC challenged a provision giving Cooper a $5 million "success" fee if Enron emerges with a reorganisation or liquidation plan.

"Would this include a plan crammed down over a class of shareholders and defrauded shareholders?" or only address what is owed to creditors and banks, the SEC asked.

Enron declined comment on the SEC's filing. But a lawyer close to the bankruptcy said the motion to block Cooper's contract could delay a case already expected to be drawn out.

"It could be a substantial setback to the case if it's not resolved very quickly," said David Bennett, a partner of Houston law firm Thompson & Knight, which represents a group of energy companies with claims against Enron.

Cooper previously worked as a partner with accounting firm Touche Ross & Co and made his mark in the wrenching reorganizations of Macy's parent company Federated Department Stores Inc, appliance maker Sunbeam Corp and construction firm Morrison Knudsen.

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