Bigwigs Can Reap Millions From Bankruptcies

ByABC News

April 30, 2006 — -- Former Enron CEO Ken Lay's defense team at his criminal trial in Houston is trying to portray him as an ordinary man -- raised on a farm, living the American dream -- who lost everything.

But for some CEOs, bankruptcy can be big business.

When Sony Wilson was laid off by Enron in 2001, she lost not only her job, but $800,000 from her 401(k).

"We were down to our savings," Wilson said. "It was a very scary time."

But even as the company laid off over 4,500 employees like Wilson, Enron began paying lawyers, accountants, and consultants what would amount to more than $750 million.

"The fees in absolute dollars are astonishingly large amounts of money," said Lynn Lopucki of the University of California-Los Angeles Law School.

One New York law firm, Weil, Gotshal & Manges, billed Enron for more than 390,000 hours. That's the equivalent of 44 years of nonstop work.

Brian Rosen, an Enron bankruptcy attorney, said people shouldn't be outraged when they hear about the numbers involved, "because they need to take a look at the bigger picture about how many jobs were saved, how much money or value is being provided to creditors."

John Marquess, who audited Enron's bankruptcy litigation bills, disagrees.

"I do not think the costs were justified," Marquess said. "An awful lot of people made an awful lot of money off this bankruptcy, and unfortunately the employees and shareholders of Enron were not among those people."

It isn't just lawyers and advisers who profit when a big company goes bankrupt. It is increasingly common for top executives to make millions even while their companies lay off workers and lose billions of dollars.

A judge just approved as much as $38 million in bonuses for executives at bankrupt auto parts manufacturer Delphi. Executives at bankrupt United Airlines could make upward of $146 million in stock options.

"Generally, the reason given for that is the need to retain top management," Lopucki said. "But very often the top managers are the people who got the company in trouble in the first place."

While Ken Lay is on trial, the man who took over as acting CEO after Enron's bankruptcy was just awarded a $12.5 million bonus.

It is a bitter irony to Wilson, who lost her life savings.

"It's money that could have gone and paid back the employees and shareholders 10 times," she said. "And it's probably money that, you know, we'll never see."

ABC News' chief legal correspondent Chris Cuomo reported this story for "World News Tonight."

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