Enron shareholders’ class action nixed

A federal appeals court ruled yesterday that Enron Corp. shareholders cannot proceed with a $40 billion class action against investment banks for their alleged roles in the accounting fraud that led to Enron’s 2001 collapse, according to published reports.
The 5th Circuit Court of Appeals in New Orleans overturned a previous ruling by Judge Melinda Harmon of the Federal District Court in Houston, who said that shareholders could sue as a class.
Judge Harmon has overseen a number of Enron-related cases.
In its opinion, the three-judge panel said, “Presuming plaintiffs’ allegations to be true, Enron committed fraud by misstating its accounts, but the banks only aided and abetted that fraud by engaging in transactions to make it more plausible; they owed no duty to Enron’s shareholders.”
The ruling came just weeks before a trial of the class action was scheduled to start.
Shareholders must now individually pursue their cases against investment banks, who earned millions of dollars in banking fees from Enron.
This sharply increases the cost to shareholders and reduces the pressure on Wall Street firms to settle.
The decision does not affect the more than $7.3 billion in settlements that Enron shareholders have already won from banks including Citigroup, JPMorgan Chase & Co. and CIBC.
Attorneys general from 30 states have sided with Enron shareholders in their bid for a class action.