Court Refuses Enron Investor's Appeal

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WASHINGTON — The Supreme Court dealt a probable fatal blow Tuesday to Enron Corp. investors' efforts to recover $40 billion from Wall Street banks in the 2001 collapse of the Texas energy company.

Without comment, the justices refused to hear arguments in the Enron case. Attorneys for shareholders immediately vowed to return to federal court in Houston in an attempt to prove that the investment banks misled the public and helped conceal Enron's true financial condition.

"It's an uphill battle and we'll keep fighting," Patrick Coughlin, the lead lawyer for the stockholders, said.

Attorney Greg Markel, a lawyer not connected with the case who represents corporate clients in securities fraud lawsuits, said shareholders' "chances of succeeding ... are nearly zero."

Enron's demise wiped out thousands of jobs, more than $60 billion in market value and more than $2 billion in pension plans at what had been the seventh-largest company in the country.

The Supreme Court's refusal to hear the Enron appeal was anticipated following last week's ruling in another securities fraud case in which the justices ruled that a company's investors must show they relied on deceptive acts committed by third parties before they can be sued.

In the case a week ago, the third parties were suppliers to one of the nation's largest cable TV companies. In the case of Enron, the third parties are Merrill Lynch & Co., Credit Suisse First Boston and Barclays Bank PLC.

In the Enron lawsuit, the 5th U.S. Circuit Court of Appeals in New Orleans already has ruled that the banks did not act directly in the market for Enron securities.

Coughlin says the legal team for Enron investors has evidence that "the analysts knew what was going on" and that the lawyers for the Enron investors can show that the banks "buoyed the market for Enron securities."

In an earlier ruling, the federal judge in the Enron case threw out the glowing statements of the research analysts praising Enron, saying lawyers for the investors had not alleged that the analysts knew their statements about the company's financial health were misleading.

To date, Enron plaintiffs have settled for $7.3 billion with several financial institutions, including JPMorgan Chase & Co., Citigroup and Canadian Imperial Bank of Commerce.

Under the settlements, the payout to investors would be $6.79 per share of common stock and $168.50 per share of Enron's stock-like preferred shares, according to a mailing sent to Enron investors, who have until April 30 to decide whether they want to participate in the settlement. Coughlin said lawyers for the investors spent $127 million in time and $50 million in out-of-pocket expenses on behalf of Enron investors.

The judge in the Enron case had said Enron shareholders could sue as a class, but the appeals court reversed that and Enron investors now will have to overcome that.

The issue of certifying a class is a critical one. Once the courts allow huge numbers of investors to pursue a securities fraud lawsuit, the defendants almost always settle rather than exposing their corporations to potentially catastrophic liability.

The appeals court decision in the Enron case meant that shareholders and investors could not pool their resources to sue as a group. Lawyers for Enron investors estimate the class size at more than 1 million shareholders.

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