Tuesday, September 09, 2008

Enron Investors May Sue Banks, Executives in Texas State Court

Bloomberg, Laurel Brubaker Calkins, 9 September 2008

Enron Corp. investors, after reaching settlements for billions of dollars in federal litigation, may sue the failed energy trader's banks and executives in Texas state court, a U.S. appeals court ruled.

The investors were initially blocked from pursing their state-court claims by a federal judge in Houston who took jurisdiction over all Enron-related lawsuits. That federal litigation, the so-called Newby case, recovered more than $7.2 billion through settlements with Enron's lenders, auditors and directors. The settlements were reached before an appellate ruling prevented investors from suing as a class, effectively ending the federal litigation.

Former Enron lenders including Merrill Lynch & Co., Credit Suisse First Boston, Barclays Plc and Royal Bank of Canada may now face new claims from several hundred investors almost eight years after Enron filed for bankruptcy in December 2001.

``Everybody's still on the hook for something, because whatever happened in Newby didn't affect us,'' Sean Jez, a Houston lawyer for the investors, said of Enron's original civil defendants in a phone interview after yesterday's ruling by the 5th U.S. Court of Appeals in New Orleans. ``We've reached settlement with all of the banks for some of our clients, but not with all of the banks for all of our clients,'' he said.

Some claims will be blocked by the state's statute of limitations, although claims for statutory fraud, common-law fraud, aiding and abetting fraud and fraud on the market will be permitted to proceed, according to the court's ruling.

Investors also may seek damages in new Texas court claims from convicted former Enron Chief Executive Officer Jeffrey Skilling, former finance chief Andrew Fastow and the estate of Ken Lay, Enron's deceased founder, among others, Jez said.

Where the Newby litigation sought recovery of more than $40 billion in losses by thousands of Enron investors, the new state-court claims entail smaller losses by fewer shareholders, Jez said.

``I wouldn't say we have anybody claiming millions in losses left,'' Jez said of the ``handful'' of Enron investor claims he expects to file in Houston state court as soon as the presiding federal judge issues an order.

``Some of these might accept a settlement because it's been so long,'' Jez said. ``But some of them have been waiting for seven years and now they'll get their chance in court.''

Merrill Lynch spokesman Mark Herr and Credit Suisse spokeswoman Victoria Harmon declined to comment on yesterday's appellate ruling. Barclays lawyer David Braff and Royal Bank of Canada spokeswoman Beja Rodeck didn't immediately return calls seeking comment yesterday.

More than 5,000 jobs and $1 billion in employee retirement funds were wiped out when Enron collapsed in 2001. Skilling and Lay were convicted in 2006 of spearheading a fraud conspiracy that deceived shareholders about Enron's true financial condition by hiding billions in losses and debt through off- books partnerships.

Skilling, who is appealing his conviction, is serving a 24-year sentence in federal prison in Waseca, Minnesota, while Lay's conviction was erased when he died before he could appeal. Fastow, who controlled Enron's off-books partnerships, pleaded guilty to fraud in 2004 and is serving a six-year sentence in federal prison in Oakdale, La.

The case is Newby v. Enron Corp., 07-20043, U.S. Court of Appeals for the Fifth Circuit (New Orleans).