lockdown

Case Study

The term lockdown became a familiar component of the finance lexicon following Enron's bankruptcy on December 2, 2001. The company's management had locked down the employees' 401(k) retirement plan five weeks earlier on October 26, when Enron stock traded at a price of $15.40 per share. The lockdown was initially scheduled by directors in March 2001 to facilitate upcoming administrative changes in the retirement plan, a perfectly legal reason. Employees were notified in early October of the coming restriction on changes to the retirement plan. Unfortunately for Enron employees who chose to maintain most of their funds in Enron shares, the firm's stock price declined to $9.98 by the time the lockdown ended on November 13. Thus, employee investments in the firm's stock decreased by approximately 33% during the two-and-a-half-week lockdown period. Some employees claimed to have been misled with regard to the last day they were allowed to make changes to the retirement plan. Other critics claimed Enron's management had knowledge of the firm's severe financial difficulties and, as a result, had a fiduciary responsibility to the employees to postpone the lockdown until the news had been released. Many of the firm's employees maintained a substantial portion of their retirement funds in Enron stock, which by the end 2001 traded for less than $1 per share. The stock had traded above $80 per share early the same year.