HARTFORD, Conn. - The law firm that advised the Connecticut Resources Recovery Authority in its failed deal with Enron will pay the CRRA $16.25 million for failing to recognize the deal's flaws.
Connecticut Attorney General Richard Blumenthal negotiated the settlement, reached Thursday, with Murtha, Cullina LLP.
"This $16.25 million recovers for the law firm's key contribution to the Enron catastrophe -- misadvising CRRA about looming financial debacle and legal disaster in the deal," Blumenthal said. "We have so far recouped almost $151 million of the $200 million CRRA lost.
Murtha, Cullina, as CRRA's general counsel, failed to recognize the deal's fatal flaws, waving its client over the cliff, instead of warning it away."
In 2000, Enron and CRRA entered into an agreement that required Enron to buy power produced at the Mid-Connecticut Project trash-to-energy facility and pay CRRA $2.375 million per month over more than 11 years.
As part of the deal, CRRA transferred $220 million to Enron, part of a $280 million payment from Connecticut Light & Power to the CRRA to buy down its contract to buy Mid-Connecticut Project electricity.
Enron went bankrupt in 2001, just nine months after the agreement took effect, and stopped making payments. The General Assembly passed legislation that put Blumenthal in charge of CRRA's Enron-involved litigation.
Blumenthal sued Enron, as well as another law firm, Hawkins, Delafield and Wood. He recovered $21 million in a settlement with that firm, as well as $111 million from Enron's bankruptcy estate.
In 2002, Blumenthal issued a release that alleged the law firms:
* Failed to provide sound legal advice and to advise CRRA that the Enron deal was illegal, unauthorized, and beyond CRRA's statutory authority;
* Failed to research and analyze the statutes governing CRRA's authority to enter into the Enron transaction and to advise CRRA with respect to the effect and meaning of those laws;
* Failed to ensure that the payments CRRA was supposed to receive were secured by something more than Enron's promise to pay;
* Failed to advise CRRA of the need to inform the 70 Connecticut municipalities in the Mid-Connecticut Project about the transaction, and seek their approval;
* Prepared the Enron transaction documents and allowed CRRA to enter into the agreement even though they circumvented and violated the statutory and regulatory laws governing CRRA;
* Failed to advise CRRA that the transaction may have violated the tax arbitrage rules of the Internal Revenue Code; Failed to advise CRRA of the risks it assumed in the Enron deal, under which Enron assumed no obligations or risks other than to repay the money advanced to it by CRRA;
* Failed to advise CRRA of viable alternate deals which would have produced a similar amount of money while maintaining security;
* Failed to conduct sufficient due diligence regarding the financial viability of Enron and to advise CRRA of the same;
* And Murtha continued to represent CRRA despite its conflict of interest in representing Enron in related matters and failed to secure prompt, timely waivers as to this conflict.
CRRA has four solid waste projects that serve 118 cities and towns in the state, and also runs environmental and recycling education programs.