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Strategies & Market Trends : VOLTAIRE'S PORCH-MODERATED -- Ignore unavailable to you. Want to Upgrade?

To: Jim Willie CB who wrote (51005)	5/6/2002 11:55:14 AM
From: stockman_scott	Read Replies (1) \| Respond to of 65232

Enron Defendants Have a Chance to Get Fraud Suits Dismissed By David E. Rovella New York, May 6 (Bloomberg) -- Citigroup Inc., J.P. Morgan, Chase & Co. and others sued over the collapse of Enron Corp. face an important court deadline Wednesday in their effort to escape liability for $34 billion in damages. They have until Wednesday to file court papers to dismiss Enron shareholder and employee lawsuits before trial. Unless the banks and others persuade the judge handling the suits to drop them as defendants, plaintiffs' lawyers will get a green light to pore over company documents and e-mails. That costly pre-trial process, known as ``discovery,'' could implicate others that had dealings with the Houston-based energy trader, said Charles King III, a Houston lawyer for seven bank defendants, including Bank of America Corp. and Credit Suisse First Boston. ``If they lose their motions to dismiss, then all the gloves come off,'' said Joel B. Strauss, a New York lawyer who represents some of the shareholder plaintiffs. Discovery would complicate the legal agenda of Arthur Andersen LLP, Enron's former auditor. The fifth largest accounting firm was sued for contributing to the $68 billion drop in market value that Enron suffered last year after revealing it had misstated income and debt through off-the-books partnerships. The Chicago-based firm goes on trial today in Houston on federal obstruction of justice charges for destroying Enron documents of interest to federal investigators. The U.S. Securities and Exchange Commission is also investigating possible civil violations. Its business, which had revenue of $9.34 billion in the fiscal year that ended Aug. 31, has lost about 250 clients this year because of Enron, which filed the largest bankruptcy in U.S. history in December. Wrongdoing Denied All defendants have denied any wrongdoing and declined to comment on what they will argue in any motion they file. The banks' and other defendants' fate is in the hands of U.S. District Judge Melinda Harmon, who is in charge of the Houston- based shareholder and pension fund suits as well as the Andersen criminal trial. In the shareholder suit, she will examine federal securities law to determine whether the plaintiffs have demonstrated in their 500-page complaint a ``strong inference'' that each defendant knowingly participated in the alleged fraud to misstate Enron's income and debt, said legal experts. If she finds that the allegations about Andersen's insider knowledge of Enron's off-the-books activities or about bank involvement in financing those operations are not sufficiently detailed to show there was probably a fraud, she will dismiss the suit, lawyers said. Law Firm, Individual Defendants The same holds true for other defendants, such as Enron's former principal law firm, Houston-based Vinson & Elkins, and Chicago-based Kirkland & Ellis, which advised an off-the-books partnership. Individual defendants include former Enron chairman and chief executive officer Kenneth L. Lay, former Andersen chief executive officer Joseph F. Berardino and David B. Duncan, Andersen's former chief auditor for Enron. Lay and Berardino have denied wrongdoing. Duncan pleaded guilty to obstruction of justice for destroying Enron documents. The shareholders allege that the banks helped Enron misstate income and debt by funding the off-the-books partnerships. The law firms helped this ``giant Ponzi scheme'' by providing legal advice regarding the legality of partnership transactions that disguised the loans as energy trades, the complaint said. Shareholders claim $25 billion in damages. `Strict Constructionist' Judge Harmon, who has described herself as a ``strict constructionist'' in interpreting federal securities law, has conflicting federal precedents to sort through in making her dismissal decision, said Michael A. Perino, a securities law professor at St. John's University School of Law. Some federal courts have ruled that merely participating in a securities fraud is enough to make a defendant liable for damages, he said. Others require that a defendant have made a material misstatement to investors, such as an accountant's certification of annual financial results known to be false. The Supreme Court has ruled defendants can also be found liable for fraud if they used a ``manipulative device.'' Federal courts in Texas have not said what that term means. Shareholders allege off-the-books partnerships were such a device. The employee pension fund suit charges that Andersen, four investment banks, Vinson & Elkins and former Enron executives acted as a ``racketeering'' group that helped Enron misstate its finances. The $3 billion in damages that employees claim their pension funds suffered can be tripled under the racketeering law. Northern Trust's Role The employees also claim Northern Trust Corp., which administered the funds, violated its legal duty by helping Enron freeze employee sales of Enron stock during its collapse and by relying too heavily on Enron stock for fund investments. The employee allegations may pose a bigger threat to defendants than shareholder ones. Shareholders must prove defendants did more than just assist in the fraud, said Michael A. Simons, a former federal corporate crimes prosecutor in New York. The racketeering law requires only that the group acted as a ``criminal enterprise'' to commit fraud, whether as principals or assistants, he said. ``An enterprise could be anything, from an organized crime family to a Fortune 500 company to five guys sitting around a table,'' said Simons. The law firms may have a tougher time getting either suit dismissed than the banks, lawyers said. Their partners signed letters that certified the partnerships had sufficient outside investors to make Enron's dealings with them arms-length in nature. That status permitted Enron to keep the partnerships' debts off its books. Some of those partnerships were totally controlled by Enron executives, the complaints allege.

To: Jim Willie CB who wrote (51005)	5/7/2002 12:23:08 AM
From: pbull	Read Replies (1) \| Respond to of 65232

Nuclear attack? Let's think this through. If I were in the insurance biz (as Buffett is), then yes, I would be talking about nuclear attack because, particularly at this point in history, there is heightened awareness that such a thing might possibly be attempted. The two largest obstacles are 1. intelligence (CIA) and 2. military readiness. Both are significant obstacles, in my opinion. This reminds me of the rational for skyrocketing insurance premiums in California back in the late '80s, early '90s because of the certainty that, one day, the "big one" would occur (earthquake), and that California would fall into the sea. That hype roughly coincided with the bottom in the California real estate market. Buffett's willingness to allow his company to write policies against further terrorist attacks speaks volumes, to me, at least. I'm a fan of Buffett, don't get me wrong, but business is business. PB