by KRISTEN HAYS
Plaintiffs whose massive Enron shareholder lawsuit was sidelined by an appeals court ruling in March want the Securities and Exchange Commission to support their fight to bring it to trial.
William Lerach, who represents the Regents of the University of California, the lead plaintiff, said Tuesday that the SEC's support of corporate interests in other securities litigation prompted a public effort to gain the agency's backing for Enron shareholders suing three investment banks.
Lerach, several ex-Enron employees and shareholders and an in-house attorney for the university, Chris Patti, are slated to discuss the issue at a news conference today in Washington.
"The SEC is going to have to make a tremendously important decision in the next couple of weeks — whether to support the Enron victims or Wall Street banks," Lerach said Tuesday.
SEC spokesman John Heine declined to comment Tuesday.
Lerach said the effort was prompted in part by a brief the SEC and the Justice Department filed in unrelated Illinois shareholder litigation. The federal agencies supported tougher standards for plaintiffs to meet in securities cases alleging fraud.
In March the Supreme Court heard arguments in the case, which raised different issues from the Enron litigation, and has not yet ruled.
In the brief, the agencies argued that "meritorious" private actions were an "essential supplement" to their criminal and civil prosecutions.
But at the same time, the agencies said, "Congress has recognized a potential for such actions to be abused in ways that impose substantial costs on companies that have fully complied with the applicable laws."
The long-pending Enron civil case already has garnered the highest settlement tally ever reached in U.S. securities litigation at more than $7.3 billion.
The bulk of that amount will come from JPMorgan Chase, Citigroup and the Canadian Imperial Bank of Commerce.
In 2003, without admitting or denying wrongdoing, the three banks also settled SEC charges of helping Enron manipulate financial statements. JPMorgan paid $135 million, Citigroup paid $101 million, and CIBC paid $80 million.
The shareholder litigation against remaining defendants Merrill Lynch & Co., Credit Suisse First Boston and Barclays had been scheduled to go to trial in Houston last month.
But in March, a panel of the 5th U.S. Circuit Court of Appeals threw out the lawsuit's class-action status and ruled that plaintiffs could not allege that the banks were primary players in fraud that helped fuel Enron's failure.
The plaintiffs allege that the banks were on the front lines of fraud, structuring deals they knew Enron would use to manipulate its financial statements. If a jury agreed, the defendants could be held liable for their actions as well as those of everyone else involved, which could result in a multibillion-dollar judgment.
The banks, which declined to comment because the litigation remains active, countered in filings that they didn't prepare or approve Enron's financial statements and could be viewed as nothing more than bit players. As such, the SEC could sue them, but class-action lawsuits can pursue only primary violators.
The appeals panel ruled 3-0 in the banks' favor, saying they "at most aided and abetted Enron's deceit."
The plaintiffs appealed to the Supreme Court, which has yet to say whether it will review the case.
Lerach noted the high court in March agreed to consider an appeal in a Missouri case centered on the same issue of whether shareholders can sue so-called "secondary" violators.
In the meantime, the $7.3 billion in settlements awaits distribution to shareholders whether class-action status is restored or not.
Stephen Smith, a shareholder who lost $18,000 when the company cratered in December 2001, said he didn't mind waiting.
He is scheduled to appear at today's news conference.
"I feel like the other parties are just as responsible as the ones that settled," Smith said. "Just because they wanted to hold out, I don't think they ought to be let off the hook if they actually participated in some of these schemes."
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