***OT***Our legal system at work: Enron shareholders and employees will now sue the banks and brokers that helped Enron commit (alleged) fraud.
And the plaintiff lawyers will also be suing the former Enron lawyers.
Do lawyers respect money more than each other? (A stupid question.)
What gets me is that the banks lost billions of dollars of their own money in the Enron meltdown, and now they will be sued as deep pockets.
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quote.bloomberg.com
04/04/02 01:08
J.P. Morgan, Citigroup, Other Banks Will Be Named in Enron Case
By Patrick Oster
Houston, April 4 (Bloomberg) -- J.P. Morgan Chase & Co., Citigroup Inc., Merrill Lynch & Co. and Credit Suisse First Boston will be named as defendants in suits seeking billions of dollars over Enron Corp.'s collapse, people familiar with the litigation said.
Enron investors and former employees have decided to add law firms and as many as eight banks on Monday when they amend their suits, alleging fraud, against the energy trader and its former auditor, Arthur Andersen LLP, the people said.
While the success of the expanded lawsuits is far from assured, legal experts said, they are an example of the way the Enron case has tarnished any institution that came into contact with the failed Houston company. Enron lost $68 billion in market value and plunged into bankruptcy after revealing financial misstatements.
``It's going to be a tough case,'' said Joel Seligman, a securities law expert and dean of the Washington University School of Law in St. Louis. The plaintiffs have to prove a direct link between a defendant and information that shareholders relied on, he said.
J.P. Morgan and Citigroup were possible targets because they gained detailed knowledge of Enron's finances as lenders and vendors of financial services, plaintiffs' lawyers have said. Merrill Lynch and Credit Suisse were potential defendants for promoting sales of Enron stock while the company misstated its income and debt, the lawyers said.
Spokesmen Joe Cohen of Merrill Lynch, Pen Pendleton of Credit Suisse and Adam Castellani of J.P. Morgan declined to comment on the litigation.
``We believe that our business dealings with Enron were entirely appropriate and therefore we think there is no merit to the lawsuit,'' said Citigroup spokesman Daniel Noonan.
Rich Sources
Plaintiffs' lawyers have declined to identify any additional defendants before the amended complaint is filed. Trey Davis, a spokesman for the lead shareholder plaintiff, the Regents of the University of California, also declined to comment.
Shareholders plan to announce their expanded suits at a Monday news conference in San Francisco.
The plaintiffs are looking for richer sources of damages with Enron in bankruptcy and Arthur Andersen fighting for survival.
The accounting firm, the nation's fifth largest, has lost scores of clients and is under federal indictment on an obstruction of justice charge for what the government says is massive illegal shredding of Enron audit documents.
Difficult Hurdles
The two main groups of plaintiffs, Enron shareholders and employees whose pension funds lost money on Enron stock, face difficult hurdles in proving the banks or law firms are liable.
Plaintiffs claim Enron and Andersen made misleading statements in annual financial reports. The Supreme Court has held that ``a material misstatement'' or ``manipulative act'' is enough to create liability, but ``giving aid to a person who commits a manipulative or deceptive act'' isn't enough.
A bank or law firm might escape liability if it said nothing publicly to mislead, even if it knew Enron's statements were false, said Seligman.
Some lower courts have ruled that entities, such as banks or law firms, are liable for damages if they substantially contributed to the fraud, said Robert Prentice, a professor of business law at the University of Texas at Austin. Federal judges in Texas, who will consider the shareholder and pension funds class actions, haven't decided which way to rule, he said.
Waste Management Case
U.S. District Judge Melinda Harmon in Houston, who will preside over the class-action Enron suits, has said in a previous case suit involving another Andersen client, Waste Management Inc., that she is a strict constructionist in interpreting federal securities laws when it comes to shareholder claims.
``She is not good for plaintiffs' lawyers,'' said Vincent Cappucci, a New York lawyer who represents Florida's pension funds, a major Enron shareholder.
Federal securities law also requires detailed facts about how any fraud was committed. Without them, plaintiffs usually can't even get to trial, said Seligman.
With that in mind, the amended complaints will be hundreds of pages long, said plaintiffs' lawyers.
The banks and law firms, if they are found liable, may be ordered to pay only that portion of damages they caused unless they knowingly engaged in fraud.
The law firms that may be added to the suits are Houston- based Vinson & Elkins, Enron's principal law firm, and Chicago- based Kirkland & Ellis, which advised some off-the-books partnerships that Enron used to shelter income and debt.
Lawyers speaking for both firms denied they did anything illegal in advising Enron.
Texas Fraud Law
Shareholders might have an easier time arguing the banks and law firms violated Texas fraud laws that are more favorable to plaintiffs, said Prentice.
The employee pension fund plaintiffs allege that Enron, Andersen and others were part of a fraud conspiracy that violated a federal law originally aimed at organized crime, said Steve Berman, co-lead counsel in that case. Berman declined to comment now on potential defendants.
The anti-racketeering statute requires only a finding that there was an ``illegal enterprise'' and that a bank or law firm conducted or participated in it or conspired to participate in it, said Berman.
Any company found liable under it may be responsible for paying all pension fund damages, he said. Damages may also be tripled. Pension fund damages are estimated at more than $3 billion.
©2002 Bloomberg L.P.
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