Wednesday, February 07, 2007

Enron's Banks Lose Bid to Combine Lawsuits for Trial

Bloomberg, Thom Weidlich, 7 February 2007

Merrill Lynch & Co., Credit Suisse Group and Barclays Plc, three former lenders to Enron Corp., lost a bid to consolidate in one trial three lawsuits brought by the defunct energy trader's investors.

U.S. District Judge Melinda Harmon in Houston today denied the request, as well as a motion by the lead plaintiff, the Regents of the University of California, to consolidate two cases for trial in the massive class action, known as Newby v. Enron, set to begin April 9 in Houston federal court.

``The procedural tracks of the cases are too disparate for consolidation with Newby at this late date,'' Harmon wrote. Enron's investors are seeking $40 billion in the Newby case.

Enron's investors accused the company's banks of helping former Chairman Kenneth Lay and ex-Chief Executive Officer Jeffrey Skilling manipulate company finances by disguising debt as loans, financing sham energy trades and using off-the-books partnerships to hide losses and inflate revenue.

New York-based Merrill, Zurich-based Credit Suisse and London-based Barclays wanted to consolidate the Newby trial with those of two other cases because they have similar facts, claims and legal theories, according to Harmon's decision. One of the two lawsuits is against Edinburgh-based Royal Bank of Scotland Group Plc and Toronto-based Toronto-Dominion Bank, the other against the Royal Bank of Canada, also based in Toronto.

The banks in the two cases, which haven't yet been certified as class actions, or group lawsuits, objected to the combination, Harmon wrote.

The Regents wanted the Newby trial consolidated with one against Goldman Sachs Group Inc. because it involved the same public offering of $255 million in convertible Enron notes as a claim in Newby, according to today's ruling. New York-based Goldman Sachs objected to the consolidation, Harmon wrote. Peter Rose, a spokesman for Goldman, declined to comment.

A federal appeals court in New Orleans heard arguments Feb. 5 on whether Enron investors can continue pressing their claims in Newby as a group. Harmon last year ruled they can and certified the case as a class-action suit. Plaintiffs in class actions can pool their resources and claims, gaining more leverage to achieve bigger settlements, or a favorable verdict at trial.

Merrill and Credit Suisse said shareholders shouldn't be able to pursue their suit as a group because they can't prove the firms directly participated in the accounting fraud that sparked a federal investigation and Enron's 2001 bankruptcy. The appeals court has yet to rule.

Investors have recovered $7.3 billion from other Enron defendants, including New York-based Citigroup Inc., New York- based JPMorgan Chase & Co. and Toronto-based Canadian Imperial Bank of Commerce.

``We look forward to trial in April against Merrill, CSFB, Barclays and the five former Enron officers,'' Regents spokesman Trey Davis said in an e-mailed statement. ``The denial of consolidation at this time allows us the opportunity to focus on that effort.''

Also named as defendants in the Newby lawsuit are Skilling, former Enron Chief Accounting Officer Richard Causey, ex-Chief Risk Officer Richard Buy, former Treasurer Jeff McMahon and former Executive Vice President for Investor Relations Mark Koenig, Davis said.

Merrill spokesman Mark Herr and Barclays spokesman Peter Truell declined to comment. Credit Suisse spokeswoman Victoria Harmon didn't immediately return a call for comment.