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Court refuses to hear Enron case
2008-01-22
The Supreme Court dealt Enron investors a defeat Tuesday, rejecting their lawsuit alleging securities fraud by Wall Street investment banks that did business with the Texas energy company. Enron stockholders may seek to revive their case in the 5th U.S. Circuit Court of Appeals in New Orleans, which ruled against them once before. Tuesday's turndown for the Enron investors came without comment in a routine Supreme Court list of cases the justices have decided not to hear. The chances that Enron shareholders can recover some money dimmed a week ago with the Supreme Court's decision against investors in a separate suit. It alleged that two suppliers doing business with a cable TV company engaged in securities fraud. In that case, the justices ruled that the cable company's investors do not have the right to sue because they did not rely on the deceptive acts of the suppliers. The same principle could apply to the Enron case, where investors relied on Enron's glowing description of its business, but were arguably unaware of any deceptive conduct by the investment banks. Lawyers for Enron investors say the circumstances in the two cases are not comparable. In the cable TV case, the Bush administration opposed investors despite the recommendation of the Securities and Exchange Commission to support them. Attorneys general from 30 states supported shareholders. In the Enron suit, stockholders are accusing Wall Street investment banks of colluding with the energy company to hide its losses. To date, Enron plaintiffs have settled for $7.3 billion from several financial institutions including JPMorgan Chase & Co., Citigroup and Canadian Imperial Bank of Commerce. Enron stockholders are seeking more than $30 billion from Merrill Lynch & Co., Credit Suisse First Boston and Barclays Bank PLC. The investment banks, say Enron investors, entered into partnerships and transactions that enabled Enron to take liabilities off its books, recording revenue from the deals when it was actually incurring debt. Last March, the appeals court in New Orleans reversed a decision by U.S. District Judge Melinda Harmon in Houston, who had said shareholders could sue as a class. The issue of certifying a class is a critical one. Once the courts allow huge numbers of investors to pursue a securities fraud lawsuit, the defendants almost always settle rather than exposing their corporations to potentially catastrophic liability. The appeals court decision in the Enron case meant that shareholders and investors could not pool their resources to sue as a group. Lawyers for Enron investors estimate the class size at over 1 million shareholders. Enron Corp., once the nation's seventh-largest company, crumbled into bankruptcy in December 2001. The failure became a symbol of the corporate scandals that rocked Wall Street early this decade. Enron's demise wiped out thousands of jobs, more than $60 billion in market value and more than $2 billion in pension plans. The Enron case is University of California Regents v. Merrill Lynch, 06-1341.
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