Supremes Toss Suit Against Bankers Tied to Enron Scheme to Defraud
Thursday, January 24, 2008 at 11:21AM Suit against bankers tied to Enron debacle is tossed by Supreme Court: WSJ Law Blog heralds the opinion in its typical anti-plaintiffs lawyer rehtoric
0n January 22, the Los Angeles Times reported that he Supreme Court dismissed the "huge lawsuit growing out of the Enron debacle that sought to hold Wall Street bankers liable for scheming with the executives of the defunct Houston energy trader."
Lawyers for investment funds and pension plans, including the University of California's pension plan, had sued Merrill Lynch and the other bankers, seeking to recover more than $30 billion that was lost when Enron folded in 2001. They argued that all the key players in the scheme that fooled stockholders should be forced to pay.In dismissing the appeal of the Regents of the University of California vs. Merrill Lynch, the court appeared to doom the big lawsuits still pending against Enron's bankers.
Today's ruling is the most recent of a spate of decisions in which the courts have favored businesses. Last week, the Supreme Court rejected the notion of "scheme liability" in a closely watched stock fraud case involving a cable TV company and its vendors. In a 5-3 ruling, the court said suits for stock fraud are limited to the company that sells stock to the public, not bankers and other firms that had done deals with the company.
And last year, a U.S. appeals court panel in New Orleans also rejected the Enron-related lawsuit. It ruled that Merrill Lynch and the other investment bankers had not directly deceived those who bought Enron's stock.Lawyers for the investors appealed to the Supreme Court and urged the justices to say that all those who profit from deception should pay. That appeal was formally rejected in a one-line order this morning.In what has become its typical response (touting for so called "tort-reformers") to the knee-capping of investors' rights, the WSJ's Law Blog, by Peter Lattman, turned the knee-capping into a victory against "extortion":Now let’s not shed too many tears for the Enron plaintiffs. They and their lawyers, led by Bill Lerach, collected $7.3 billion in settlements from Wall Street banks before the case was scuttled by the Fifth Circuit last year. Tort-reform advocate Ted Frank, in a NY Sun op-ed today, says this amounted to extortion. Yesterday’s ruling, he wrote, “closes an underreported chapter in American litigation history: how trial lawyers used the Enron scandal to successfully and legally extort billions of dollars from investment banks with a legally meritless lawsuit.”
Meritless!!! The Supreme Court never said meritless! They only said they believed Congress did not want investors to recover through the use of private lawsuits, and tried to justify what Congress never said through the use of mumbo jumbo economic theory involving unsupported fear of things like foreign investors fleeing our markets if fraudsters were held accountable.
It has always seemed strange to me that people seem more concerned about the money being made by those who protect their rights, than about the money being made by those who steal from them.
Fortunately, based on the comments to the WSJ Law Blog, most readers disagree with the journal and see the result as wrong. Their comments are worthy or republication and so, as of today, they are as follows:
enron is sad, what is even sadder is supreme court decision that will insulate banks who in my opinion benefitted tremendously from their participation in the scheme.
Is it me or is everyone ignoring the fact that the SEC can still pursue action against these organizations under the current law (10(b)(5) - I think?). Simply put, the SCOTUS said that, under the current statute, there is no private cause of action against these alleged aiders and abetters. How is this so terrible?
What evidence is there that the banks KNEW that Enron was cooking the numbers? If they knew, then they should of course be held liable. But no solid evidence has been presented to date…
In oter words, the ruling does not insulate banks or any 3rd party. If you can present solid evidence of knowledge and/or complicity at initial hearings & discovery, then you can proceed to trial. If not, then stop looking for deep pockets to rob…
Terrible because plaintiffs lawyers can’t make millions extorting banks and accountants
I hit the submit button accidentally. Why not seek a change in the law by lobbying Congress (since, as shareholders, you have some amount of disposable income)? Or, pressure the SEC to prosecute/investigate these alleged crimes. I don’t get it, the law does not create a private cause of action - so the plaintiff’s bar/shareholders gets upset because the SCOTUS interprets the law according to its plain language instead of seeking change in the appropriate manner - through the legislature, not the courts.
Hey UB2L. No, the educated are not ignoring the fact that the SEC can pursue action against aiders and abettors (which in the case of Enron is a monumental sugar coating) but are cognizant of the fact that the SEC’s recovery is capped based on ill-gotten gains of third parties only, NOT damages. A straw and suction power would not have been able to dry the floor of the Titanic as it was taking on water.
Why do you think the Chamber of Commerce is pushing the idea? because businesses get off with not a slap on the wrist, but SPF 100 lotion to protect them from the burn. Duh.
You have a problem with exorbidant lawyer’s fees - fine - so do I. They often ask for way too much. But don’t use that as an excuse to deny justice for legitimate victims. This angle is just your cop out and Chamber back rub.
Fed R ACiv Proc 23.1, Derivative Rights of Shareholders permits shareholders the right to pursue causes of actions when the Corporation fails to do so. While FR Civ P 24, Intervention and FR P 25 Substitution of parties allows the pursuit of an assignable right. The Sup Ct has not stated anything invalid, it stated that the case of Finding of Fact that the investment banks were complicit has not been proven by the “red herring” doctrine. No Proof, no pudding.
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When a case is submitted to the US Sup Ct many legal entities and schools take a shot at review, with essays and prediction papers on the probability and outcome of the case (whether it will be docketed and what the decision shall be). When a redress pursuit wishes to punish a distant party there must be a “protocol” of proof of willful misconduct or gross negligence. Even employees within had no idea. Now that one knows what the Court wants, the only question is how many alternative pathways will the Courts permit for another bite at the apple.
Lastly, Enron was the worst case of fraud America had to offer and the high court repulsively bless this. As other articles on this topic noted, this IS AN ABSOLUTELY HORRID MESSAGE to send corporations, markets and our economic machine. If the Supreme Court had not been sold to the Chamber things would be very different for you. The law is lost in the corporate sea.
“SEC can still pursue action against these organizations under the current law (10(b)(5)”
are you serious. What has the SEC in all its understaffed, underpayed glory going to do. They enter into deferred prosecution agreements in return for a bribe of millions. Look at hte AOL time warner case. Deferred prosecution agreemnts for a few million dollars. The system is broken, corrupted by teh chamber of pigs and all the corporate lobbysists. Did you read the Supreme Court decision. It is not reasoned on law, but an overwhelming concern for companys’ interests. Dissent was the only thing on point in Stone Ridge.
extorting banks and accountants. You mean corporations are free to financially plunder, rape and pillage the US shareholder.
I’m sure they will assert a theory of primary liability for the 10(b) violation on a new interpretation of what constitutes a statement and reliance. And then let the courts explain how such blatant frauds (where there is no statement and no reliance) does not establish 10(b) liability. And then congress will act.
Securities suits ought to be outlawed. Everyone knows that.
I do not see how those who have responded to my posts have answered my questions (instead they have derided me without actually attacking my position). My question is: If the law doesn’t permit(which according to the text of the law and judicial cannons of statutory interpretation)a private cause of action for shareholders per se, why not seek change in the legislature? Can the detractors here not answer that or is the answer simply, “We don’t want to.” If that is the case, then too bad. No one sold out to the CoC, the Court merely interpreted the law the way it was written. Shareholders can still sue 3rd parties so long as there is reasonable reliance on a intentionally misleading statement (or loosely, simply a misleading statement) to the shareholders’ detriment, which did not happen here. I am not saying that what Enron did was right, nor am I saying that 3rd parties should be protected; however, I am saying that Courts are constrained by the law and now the law says that there is no private cause of action for scheme liability (3rd party fraud). Seek your changes and retribution/redress of grievances in the legislature in the form of a bill permitting a private cause of action; then sue till your hearts’ are content. God, you guys are such a bunch of children, “Give me what I want now (the Courts legislating a cause of action for shareholders) or I am going to throw a temper tantrum in the corner until you do (exhibited by the posters on this blog)!!!” Perhaps your problem with my reasoning is that I don’t agree with you by default - I have read the opinion and find it legally correct and quite neutral. BTW, as a means of inciting more hate-filled rhetoric against my views, I believe shareholders and fear of risk are the reason why this Country is facing recession or even worse, depression (i.e. see the history on the great depression - too many shareholders selling in the face of economic woes without anyone buying causes a chain reaction whereby everyone suffers). I wonder if the public can sue shareholders for bailing on companies, who depend on their cash investments for funding, because the shareholders pulled out when the going got tough?
Laser and UB, you guys are delusional morons.
When the author of the PSLRA drops a major hint that no, the way Stoneridge was decided was NOT the intent of Congress …you would figure the Supreme Court would get the hint for the bigger decision in Enron that was to come.
Not only did the Supreme Court outright reject giving Enron victims their day in court (at the urging of the SEC which usually carries the most weight in this regard), but they did so without even commenting. (parroting the Chamber of Commerce’s amicus does not count) Talk about a kick to the groin when one is already down on their knees and out.
Dr. Judekyll meets Mr. Political Hyde. This is what happens when politics takes over the law.
I can only imagine how the Enron victims are feeling right now. Then again, imagining does not put me in their shoes so I guess I could never imagine the horrors the victims must be feeling right now. May God give you all strength and hope.
Any of these “justices” able to moonlight over to Europe?
Societe Generale Uncovers Massive Fraud
http://biz.yahoo.com/ap/080124/france_societe_generale_fraud.html
5:55 am. It is a wake up call for investors in the US markets. My advice is less equities, more fixed investments. Trust no corporation in an environment where fraudsters have been super insulated by the Supremes like this. Be smart and be careful not to be treated like a wheel barrow at a manure pit.
Watch for the \”Flight of the Benjamins\”. A boon for international markets.
CNBC has a show called American Greed. Perhaps they could dedicate a show to the topics of this thread.
There is in essence a “Code” that is widespread across the financial community.
When you talked about Sarbanes Oxley there is an underlying issue that people are should be taking a look at with this legislation.
The first step is that most states have employment at will.
The second step is that most companies require employees to sign off on an ethics
statement to ensure that they are not performing illegal acts.
The third step is that if an employee uncovers a potential illegal or Fraudulent act they
are potentially labeled as a non team player.
The forth step is that if the employee brings up the illegal act the company is free to fire the employee at will.
The fifth step is that there may be potential political issues that might cause the
complaint about the company to be ignored or hidden.
The sixth step is that the person who is fired usually does not have the money or
resources to litigate against the company for defamation issues or to bring to the
surface the issues without the fear of retaliation or gainfully obtaining future
employment.
The seventh step is that by the time the issue surfaces at the company the Fraud might
be wide spread and may have occurred at the third party level in which may have been
the source of the actual Fraud.
The eighth step is that the Supreme Court ruling already has indicated that investors do not have the right to litigate against a third party even though they may be potentially the source or abetted the Fraud.
The ninth step is that the financial statements that are being issued by the companies are not uncovering the Fraud so that the investor is really in the dark. (i.e. Off Balance Sheet Mortgages) All you keep hearing is that once one write down is completed
another one awaits.
The tenth step is to realize that unless a person adheres to the “Code” the ability of the person to work in the future or to bring up these issues without retaliation will continue which will ultimately make the potential Fraudulent acts to continue.
If I recall when the Enron issue occurred there was a push to try and make the
accounting in company financial statements to be clear and concise so that the average investor understands what is going on. The bottom line is that is all about the Cash and since most companies file consolidated financials a lot of issues do not surface since there is intercompany eliminations that might hide the potential Fraud. Maybe they should require a segmented Cash flow statement to show intercompany loans between
all affiliated companies as well as off balance sheet accounting. This way an investor would absolutely know where the potential problems will lie.
There is the real problem and unless people see if for what it is all the continued talk
will not resolve the real issue at hand.
Unless the shell games stop people will continue to loose the cash that they invest.
It is probably safer to invest in their own future by paying down their own debt before investing without adequate protections.
Remember people have invested their futures in all of these vehicles in order to provide for future pension benefits.
The year end (2007) increase in the market after the first month has almost been fully
eliminated. Sounds like the people who invested their monies in the 401K plans who
entrusted their money to earn adequate returns did not materialize.
If it continues on its present course what will be left?
At least they will be in control of their own cash.
It is all about who controls the check book.
The supreme court ruling might be giving a false read about responsible business ethics.
If you remember they talked about clear and concise financial reporting.
How can this continue to occur if they were supposed to learn from Enron. If they did then the CDO issues should have been avoided or minimized.
It appears that no one has learned the lessons of the past.
Pay no attention to the person behind the curtain…..
If business ethics was restored then there would be no reason to sue. Currently only the people with money can sue to protect their interests. The people who cannot afford proper counsel are put into very difficult positions. The idea of a class action lawsuit was there so that investors were afforded some protection to litigate against big corporations since an individual could not afford to litigate independently.
Now with the Supreme Court ruling with regard to third party litigation, unless
financial disclosures are in place to give clear and concise information with regard to the true financial position of a corporation, investors may be left out in the dark. This has created a shell game environment in which if the cash has exchanged hands at the
third party level good luck on recovering your cash. This will no longer be an option.
All the pension money that has been invested at the corporate level might be lost due to negligence at the third party level. What really is interesting is that the corporation might know that there is Fraud at the third party level. Most corporations might know
this verbally (Code) but you can rest assured that they would not have any electronic
documentation to incriminate themselves or attach themselves at the third party level. This is the business ethics that has materialized.
Most of the executives remove themselves from incrimination by verbally managing their company and not supporting their positions in writing. This is supported by D&O
coverage only at the officer level. They make sure that they have ample coverage in
the event Fraud issues come up and there are golden parachute packages in place that in the event they get caught these are contracts in which they might get paid anyway when they are removed from their positions.
Where does this leave the incentive for people who work at the corporations to
uncover potential Fraud? These are the same people who are creating the third party
business relationships in which the Fraud might be taking place.
Do you really think that all the people of Enron did not know what was going on before it was too late?
Do you really think that all the people involved in the CDO crisis did not know what
was going on?
I would think not…………
WASHINGTON — The Supreme Court rejected Tuesday the appeal of a $40 billion
lawsuit against Wall Street firms that did business with Enron Corp., striking a fatal
blow against the class-action investor lawsuit.
All business ethics are gone. It might be a good idea for people to pull their money out
of the market so that they can hold on to the money that they earn or save.
They are better off paying off debt and the retirees are better off with conservative
bank rates since all the investor protections appear to be eliminated. Let’s hope that the regulators ensure that each bank is meeting the required liquidity requirements so that
our bank accounts are protected.
Just imagine if lawsuits come out against the banks for the CDO mess in which the regular financials did not disclose the off balance sheet problems. Are we going to
hear that the bank investors or depositors can not sue the third party people due to the
Stoneridge ruling? It appears to be so…..
This is giving the appearance that there is no ramifications for moving the cash to
another entity (third party) which might be the source of the Fraud.
Is the current ruling giving the appearance that the shell games that are played on city
streets is OK?
This appears to be insane…..
What is next?
Statutory interpretation coming from chamber-colored glasses is the problem. Correct interpretation is never possible when those glasses are dawned to protect the Supremes’ eyes from the bright flash created by the firing of the judicial cannon that is aimed directly at even the most egregious of cases.
As for the rest of your daffy remarks, I shall not even dignify such nonsense with a response of my own.
Candles in the wind,
Terry
A little late but I just seen the news on a local news channel talking about pension. If Martin Luther King, Jr. were alive today to see what has happened to our “justice” system, he would not be saying: “I have a dream”, but “I have nightmares”. I think I will marry a Canadian I am so disgusted by what is happening to this country.
And before you go there, no, I am not a lawyer. I don’t like lawyers, but what I hate even more are travesties of justice like this. Shred the law books, this supreme court has made them outdated and largely obsolete. Corruption runneth deep. It is amazing how many flips of the coin in the big court land on business heads and consumer tails - in reference to where people get screwed. A despicable bunch and showing of power abuse like no other. Supreme Clowns! And these clowns have the final word which makes me so mad! Arggh!
