Thursday, July 20, 2006

Judge Dismisses Barclays from Enron Shareholder Litigation

Bloomberg, 20 July 2006

Investors can't pursue securities fraud claims against Barclays Plc, Britain's third-biggest bank, over its role in Enron Corp.'s 2001 collapse, a federal judge ruled.

Investors claimed London-based Barclays and other banks helped Enron structure and finance off-the-books transactions used to hide debts and losses. A federal judge ruled today that because Enron, not Barclays, was primarily responsible for mischaracterizing the nature of these transactions in public filings and statements, the bank couldn't be deemed a primary violator of the securities fraud statute.

"The allegations at most portray Barclays as a culpable aider and abettor," U.S. District Judge Melinda Harmon of Houston said in a 67-page order issued today. The U.S. Supreme Court ruled in 1994 that, under federal securities laws, defendants can't be held liable for aiding and abetting.

Enron investors have sought more than $40 billion in damages, alleging the Houston-based company manipulated its finances before filing the second-biggest bankruptcy in U.S. history in 2001. Plaintiffs alleged that by helping Enron structure transactions used to hide debt and losses, Barclays participated in securities fraud.

Lawyers for Enron's former shareholders so far have reached settlements of securities-fraud claims against five former Enron lenders, including Citigroup Inc. and JPMorgan Chase & Co., recovering more than $7 billion.

Last month, Harmon dismissed Deutsche Bank AG from the case, saying the allegations in the suit were ``too general'' and lacked specific facts needed to prove fraud. On July 5 she ruled that the shareholders could combine their claims against the remaining defendants and proceed as a class.

The case is Newby v. Enron Corp., 01-cv-3624, U.S. District Court, Southern District of Texas (Houston).