SEC to back Enron shareholders' lawsuit
The Enron shareholders' $40 billion lawsuit before the Supreme Court contends that Merrill Lynch & Co., Barclays PLC and Credit Suisse Group should be held equally liable as Enron Corp. as participants in the energy company's massive accounting fraud. Thirty states took the shareholders' side, and the SEC's widely awaited position has been viewed by some observers as a key test of the agency's leanings on questions of investor protection under Chairman Christopher Cox.
The SEC has asked the Justice Department's solicitor general, who represents the government's view in Supreme Court cases, to file a court brief in support of the Enron shareholders' position, The Washington Post said, citing unnamed people familiar with the SEC's decision.
SEC spokesman John Nester declined to comment.
In recent weeks, unions, state regulators and plaintiffs' attorneys have been pressing the SEC to intervene in the case on the side of the Enron shareholders.
The shareholders appealed to the Supreme Court after a federal appeals court in New Orleans ruled in March that they cannot proceed with their class-action lawsuit. The high court is expected to hear arguments in the case in its next term that begins in October.
Dan Newman, a spokesman for Enron plaintiffs' law firm Lerach Coughlin, said Saturday the firm had not been informed of the SEC's intention to support the shareholders' position.
"But if it's true that the SEC has affirmed their long-standing opinion that all fraudsters can be held accountable, it's a positive step for investors, taxpayers, financial markets and victims of corporate misconduct," Newman said.
Enron, once the nation's seventh-largest company, filed bankruptcy in December 2001 when accounting tricks could no longer hide billions of dollars in debt. The collapse wiped out thousands of jobs, more than $60 billion in market value and more than $2 billion in pension plans.
The attorneys representing the shareholders argue that the Wall Street investment banks played key roles in Enron's "scheme to defraud." Under a 1995 law, a single defendant can be held liable for paying the entire amount of damages if the judge determines that the defendant knowingly violated the securities laws.
The SEC's position in the case appears to be in line with its legal arguments in recent years in lower courts. The agency has said that an investment bank may be deemed a "lead violator" if it intentionally engaged in a deceptive act in a scheme to defraud shareholders. The idea expounded by the SEC was that sort of deception can be made by acts as well as words.
Still, a number of union leaders, investor advocates and politicians voiced concern in recent months that the SEC could refrain from taking a stance in the case or side with the investment bank defendants.