Investors who put at least US$300 million into an Enron Corp partnership used to cordon off debt from its books are battling in court to bar a former Enron executive from running the venture.
Eleven investors in LJM2 Co-Investment LP, including Citigroup Inc and The Travelers Indemnity Co, have sued in Delaware Chancery Court in Wilmington to remove Michael Kopper as general partner. Kopper, former head of Enron's North American division, took over in July as the partnership's head from former Enron Chief Financial Officer Andrew Fastow.
The LJM2 partnership is a target of a dozen government investigations into the collapse of Enron, which filed the largest Chapter 11 bankruptcy in December. Enron's disclosure in November that Fastow made US$30 million managing two off-book partnerships, including LJM2, hastened Enron's collapse.
Control of more than US$300 million may be at stake in the suit to remove Kopper. The court papers don't say, and lawyers on both sides declined to comment. Investors could be left with nothing if the partnership's assets are pulled into Enron's bankruptcy case, lawyers said.
"Creditors are likely to make a move on anything left in this partnership in which Enron has an interest," said Chuck Tatelbaum, a Naples, Florida, attorney representing two Enron companies with claims against Enron in the bankruptcy case.
Fastow set up dozens of private partnerships to buy and sell Enron assets. Kopper worked with Fastow at Enron to help market some of the partnerships to investors and left the company to run LJM2, according to company filings and court records.
Fastow formed LJM2 in 1999, and the partnership acquired energy and telecommunications assets from Enron, including an 30,000km fiber-optic network it bought in June 2000 in a transaction that resulted in a US$67 million profit for Enron.
LJM2 sold the network six months later for a US$53 million profit, according to documents Enron filed with the US Securities and Exchange Commission.
"Mr. Fastow and Mr. Kopper are the architects of controversies that led to" Enron's bankruptcy, Michael Goldman, a Wilmington lawyer representing the suing LJM2 limited partners, said at a Jan. 10 hearing in the case.
"Mr. Kopper has interests that are in conflict with both the partnership and the limited partners," Goldman told Chancery Court Judge Jack Jacobs in seeking to bar Kopper from controlling the partnership while the case is litigated.
Jacobs ordered Kopper on Jan. 15 to hand over the partnership's reins to turnaround specialist Jay Alix & Associates and make all "books, papers and records" available to the firm pending a trial due to begin Feb. 25. Kopper and his lawyers didn't return calls seeking comment on the suit.
In court papers, Kopper said the investors who are trying to remove him violated the partnership agreement.
He said investors like Citigroup Inc's Citicorp and The Travelers Indemnity Co, which agreed to invest US$10 million and US$3.1 million in LJM2 respectively, missed a Jan. 4 deadline for providing funds owed the partnership. That included their share of a US$70 million interest payment, he said. The loan is now in default, he said.
The partnership agreement prevents them from banding together to force out the general partner because they defaulted on those payments, Kopper said.
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