A federal judge in Houston said Friday she will evaluate whether three high profile financial institutions being sued for $40 billion in connection with Enron Corp.’s collapse should be dropped from litigation after the U.S. Supreme Court refused to hear the case.
Attorneys for Merrill Lynch & Co., Credit Suisse First Boston and Barclays Bank PLC asked U.S. District Judge Melinda Harmon to reconsider their motions to dismiss the cases against their clients. The three financial institutions are accused of participating in the accounting fraud that led to Enron’s downfall.
“There is no liability” on the part of financial institutions, said Richard Clary, an attorney for Credit Suisse.
Harmon agreed to reconsider the motions and asked attorneys for the firms and the investors to file legal briefs about whether the financial institutions should be dropped from the case. Harmon would make a ruling at a later date, after receiving the briefs.
The request came after the Supreme Court last week refused to hear arguments in a lawsuit filed by investors seeking to recoup the billions they lost when the once mighty energy giant Enron filed for bankruptcy after a wave of accounting scandals.
The lawsuit made its way to the high court after an appeals court last year ruled shareholders and investors could not sue as a class, which would have allowed them to pool their resources to sue as a group and have more leverage to settle the case out of court.
The Supreme Court’s decision came after another securities fraud case in which the high court ruled a company’s investors must show they relied on the deceptive acts committed by third parties. The ruling gave a measure of protection from securities lawsuits to suppliers, banks, accountants and law firms that do business with corporations engaging in securities fraud.
In that case, the third parties were suppliers to Charter Communications Inc., one of the nation’s largest cable TV companies.
Attorneys for investors argued Friday the Supreme Court ruling in the Charter case left room for them to argue the class certification issue again because the decision focused on vendors or suppliers and not on banks or investment firms.
Patrick Coughlin, a San Diego-based attorney for the regents of the University of California, the lead plaintiffs in the lawsuit, asked Harmon to give plaintiffs 30 days in which to file legal briefs arguing the class certification issue.
“The investment firms and banks knew about the fraud at Enron,” Coughlin said.
Harmon denied Coughlin’s request.
If the three firms are dismissed, other defendants would still remain, including former Enron chief executive Jeffrey Skilling. But many of the deep financial pockets that could result in a huge payday for investors would be gone.
Before Harmon rules on that issue, she is expected later this month to decide whether to approve a plan to distribute $7.3 billion that has already been recovered as part of the lawsuit from other financial institutions.
About 1.5 million individuals are eligible to receive money from the settlement fund.
Enron, once the nation’s seventh-largest company, entered bankruptcy proceedings in December 2001 after years of accounting tricks could no longer hide billions in debt or make failing ventures appear profitable.
The collapse wiped out thousands of jobs, more than $60 billion in market value and more than $2 billion in pension plans.
Enron founder Kenneth Lay and Skilling were convicted last year for their roles in the company’s collapse. Skilling is serving a sentence of more than 24 years. Lay’s convictions for conspiracy, fraud and other charges were wiped out after he died of heart disease last year.
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