Enron Corp. Case 10/22/2001

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Company Name(s): 
Enron
Case Name: 
Enron Corp. Case 10/22/2001
Case Status: 
Lawsuit Filed
Case Status: 
Judgment Issued
Case Status: 
Settlement Proposed
Case Status: 
Settlement Approved
Affected Securities
XETRA: ENR.DE
Lawsuit Overview
Type of Lawsuit: 
Shareholder Class Action
Date Filed: 
10/22/2001
Class Period Begin: 
09/09/1997
Class Period End: 
12/02/2001
Court of Filing: 
United States District Court for the Southern District of Texas
Date Settled: 
09/10/2008
Settlement Amount: 
$7,200,000,000
Deadline to Participate in Settlement: 
02/16/2010
Settlement Notice: 
Settlement Proof: 
Summary: 

According to a press release dated September 09, 2008, a judge has signed off on awarding plaintiffs counsel Coughlin Stoia Geller Rudman & Robbins LLP $668 million plus interest for its work on the Enron Corp. securities and Employee Retirement Income Security Act litigation — believed to be the largest award ever in a securities class action. On Monday, Judge Melinda Harmon of the U.S. District Court for the Southern District of Texas also gave final approval to the proposed distribution plan for the more than $7.2 billion settlement reached in the case, which accused Wall Street's largest firms of aiding in the fraud that caused Enron's collapse. “We're pleased that the court recognizes the tremendous amount of work, skill and determination required to overcome significant obstacles in this complicated case and recover over $7 billion for defrauded investors,” said Patrick Coughlin, chief trial counsel of Coughlin Stoia.

A press release dated August 22, 2008, announced that the U.S. District Court for the Southern District of Texas is considering and has yet to rule on a motion by Merrill Lynch & Co., Inc., that sought the dismissal of the case, captioned "Newby v. Enron Corp., et al., Case No. 4:01-cv-03624," according to the company's Aug. 5, 2008 Form 10-Q filing with the U.S. Securities and Exchange Commission for the quarter ended June 27, 2008. On April 8, 2002, Merrill Lynch was added as a defendant in the class-action suit.

According to a press release dated November 21, 2007, lawyers who recovered about $7.2 billion in settlements for investors of the energy trader Enron who were damaged by its collapse in late 2001 are seeking $700 million for their efforts, the largest fee in a securities-fraud case in history. Lawyers from the firm of Coughlin Stoia Geller Rudman & Robbins, which served as lead counsel for Enron investors, are seeking 9.5 percent of the billions recovered from Enron's former lenders, according to a court filing.

According to a press release dated March 20, 2007, according to the Associated Press, a three-judge panel of the U.S. Court of Appeals for the Fifth Circuit stated that "class certification may be the backbreaking decision that places 'insurmountable pressure' on a defendant to settle, even where the defendant has a good chance of succeeding on the merits." "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 judges also asserted, according to The New York Times. The Board of Regents of University of California, the lead plaintiff, had alleged that Merrill Lynch, Credit Suisse First Boston, and Barclays Bank set up false investments in clandestinely controlled Enron partnerships and used offshore companies to disguise loans and facilitate phony sales of phantom Enron assets. As a result, added the university, Enron executives were able to deceive investors by reporting increased cash flow from operations and by moving billions of dollars of debt off Enron's balance sheet, thereby artificially inflating securities prices. The appeals court ruling overturns last August's decision by U.S. District Judge Melinda Harmon that a class action was appropriate. In February, Judge Harmon ruled that the lawsuit would proceed toward its April 9 start date despite the pending appeal.

In a press release dated January 24, 2007, a federal judge granted a request by former shareholders and investors suing Enron Corp. to drop several individuals and firms, including deceased company founder Kenneth Lay, from their lawsuit. The Regents of the University of California, the lead plaintiffs in securities litigation against Enron and several banks, asked for the dismissals last year. U.S. District Judge Melinda Harmon approved the request Wednesday in the class-action lawsuit. The plaintiffs are suing investment firms and global banks they claim played key roles in Enron's collapse. The lawsuit, set for trial in April, is seeking billions of dollars in damages. Besides Lay and his estate, those dismissed from the lawsuit include Vinson & Elkins, Enron's former outside law firm; Kenneth Rice, former chief executive of Enron's broadband unit; Joseph Hirko, another former CEO of the broadband unit; Kevin Hannon, former chief operating officer for the broadband unit; Lawrence "Greg" Whalley, a former CEO of Enron's wholesale trading unit; and Lou Pai, former retail energy unit CEO at Enron. Trey Davis, a spokesman for the lead plaintiffs, said the decision to remove these individuals from the lawsuit was made because it was unlikely investors would be able to recoup any money from them. "It allows us to ensure that we can collect the larger share of recoveries from more culpable defendants from whom we are more likely to recover money," he said.

In a press release dated December 6, 2006, British bank Barclays has been reinstated as a defendant in an Enron investor fraud suit by a judge who gave shareholders another chance to describe the bank’s role in the company’s collapse. Judge Melinda Harmon of Federal District Court in Houston said yesterday that she put the bank back into the case because the law governing bank liability in securities-fraud cases changed after investors’ lawyers made their original arguments about Barclays’ Enron-related activities. The judge said she wanted to give shareholders another chance to persuade her to keep the bank in the case. Enron had more than $68 billion in market value before its December 2001 bankruptcy filing. Investors who claim they lost $40 billion in the company’s collapse have recovered $7.3 billion so far in settlements with the company’s former lenders. Some investors contend that Barclays played a role in Enron’s accounting wrongdoing. The trial, which also includes Merrill Lynch and the Credit Suisse Group as defendants, is scheduled to begin in April in Houston. “This is a ruling based on the plaintiff’s procedural objection,” said David Braff, a lawyer for the bank at Sullivan & Cromwell in New York. “The judge has allowed the plaintiffs an opportunity to replead. In so doing, she has strongly confirmed the legal analysis and reasoning that supported her dismissal of Barclays in July.”

In a press release dated October 6, 2006, FleetBoston Financial Corp., Fleet National Bank and other affiliates have agreed to pay Enron Corp. nearly $20 million to settle their portions of a lawsuit filed against 10 banks accused of failing to prevent the energy company's collapse, officials announced Friday. FleetBoston, which was bought by Charlotte, N.C.-based Bank of America Corp. in 2004, will pay Enron $10.4 million to settle the so-called 'MegaClaims' lawsuit and $9.35 million to settle an avoidance action to recover preferential transfers in connection with Enron's commercial paper litigation. 'We are gratified by the additional progress we have made to date in the MegaClaims litigation and remain eager to reach resolution with the remaining financial institutions,' John J. Ray III, Enron's President and Chairman of the Board, said in a statement. FleetBoston, which did not admit liability or wrongdoing, and Enron said in a statement they settled the lawsuit to avoid the costs and uncertainties of more litigation.

According to a press release dated October 1, 2006, in a significant legal victory for a bank implicated in the collapse of Enron Corporation, a federal judge in Houston threw out all shareholder claims against London-based Barclays Bank plc on July 23. Several other major banks, including Citigroup Inc., JPMorgan Chase & Co., and Canadian Imperial Bank of Commerce have already paid billions of dollars to shareholders to settle the securities class action. … Shareholders brought the class action against banks in 2002, seeking to recover $40 billion. They alleged that Barclays and other banks participated in fraud on the part of Enron executives by helping them disguise the company's debts. In the specific claim against Barclays, plaintiffs claimed that the bank assisted Enron CFO Andrew Fastow in creating a limited partnership designed to keep the company's debt off its balance sheet. Shareholders also alleged that Barclays enabled the fraud by providing Enron with $3 billion in loans and an additional $2 billion in cash through securities sales. But Judge Melinda Harmon ruled that Barclays's alleged actions at most amounted to aiding and abetting Enron in committing securities fraud. Under standards set by the U.S. Supreme Court in Central Bank of Denver, N.A. v. First Interstate Bank of Denver N.A., she wrote, parties that aid and abet fraudulent acts by another party in a civil suit are not liable for damages. Barclays's victory will undoubtedly be encouraging to several other Enron lenders involved in pending litigation, including Merrill Lynch & Co., Inc., and The Toronto-Dominion Bank, which are seeking dismissal on similar grounds. The judge will rule on those motions before the case moves to trial.

According to a press release dated September 22, 2006, the University of California secured another $86 million worth of settlements Thursday for itself and other Enron Corp. investors. On Thursday the university said it agreed to a $72.5 million settlement from Arthur Andersen, the accounting firm that collapsed after it was prosecuted in connection with Enron's downfall. Despite Andersen's obvious financial limitations, the firm is capable of paying off such a settlement, said UC spokesman Trey Davis. UC also said it obtained $13.5 million from the Kirkland & Ellis law firm. The firm represented several of the little-known Enron affiliates that helped the defunct Houston energy giant manipulate its finances, UC said. The latest settlements mean UC, the lead plaintiff in the shareholder case against Enron, has obtained settlements totaling more than $7.3 billion on behalf of thousands of investors. Several major defendants still remain, including big investment banks. Investors lost an estimated $47 billion or so, attorneys in the case have said. The settlements suggest investors will recover about "10 to 20 cents on the dollar," Davis said.

In an article dated July 27, 2006, a Houston federal court has dismissed Barclays Bank from a class action suit stemming from the Enron Corporation bankruptcy. Judge Melinda Harmon, in Mark Newby v. Enron Corporation, 4:01-cv-03624, held that the British financial institution's actions amounted to aiding and abetting the collapsed energy company, and did not therefore constitute violations of §10(b) and Rule 10b-5(a) and (c) of the Securities Exchange Act under the standards set out by the U.S. Supreme Court in Central Bank of Denver, N.A. v. First Interstate Bank of Denver, N.A., 511 U.S. 164. … In reaching her decision, she relied heavily on Southern District Judge Lewis A. Kaplan's decision in In re Parmalat Sec. Litig., 375 F. Supp. 2d 472. Quoting from that case, Judge Harmon said that the major question in the Barclays dispute was whether the bank 'directly or indirectly used or employed any device or contrivance with the capacity or tendency to deceive.' (See NYLJ, Corporate Securities column by John C. Coffee Jr., July 20, page 5,). Judge Harmon held that, because it was Enron--not Barclays--that created Chewco in order to give the false appearance of a financially strong company, the allegations 'at most portray Barclays as a culpable aider and abettor.' Even if the bank did act in a deceptive manner, Judge Harmon said, it could not be held accountable for entering into the transactions 'knowing or even intending that Enron or its auditors would misrepresent the nature of the arrangements.'

In a press release dated May 25, 2006, a federal judge gave final approval Wednesday for three more banks to pay $6.6 billion to settle civil claims that they helped Enron Corp. manipulate earnings. U.S. District Judge Melinda Harmon in Houston approved the deals with the Canadian Imperial Bank of Commerce, JPMorgan Chase & Co. and Citigroup Inc.

In a press release dated February 23, 2006, a judge Wednesday granted preliminary approval to $6.6 billion in Enron Corp. shareholders' settlements with Citigroup, JPMorgan Chase and CIBC, people on both sides of the case said. The sum, which will be larger when interest is taken into account, is the largest chunk of more than $7 billion in total settlements already reached with Enron, its banks, insurance companies and others. U.S. District Judge Melinda Harmon set final approval for May 24.

In a press release dated August 17, 2005, J.P. Morgan Chase & Co. agreed to pay Enron $350 million and effectively waived some of its claims against Enron, bringing the total value of the deal for Enron creditors to more than $1 billion. Separately, Toronto-Dominion Bank is paying Enron $70 million and is relinquishing rights to pursue some claims against Enron. Canadian Imperial Bank of Commerce, Royal Bank of Canada and Royal Bank of Scotland Group PLC also have settled the Megaclaims litigation, which is separate from class-action suits filed by Enron investors. Enron said yesterday's settlements bring payments in the Megaclaims case to $735 million. In addition, banks have agreed to forgo or to pay for rights to pursue about $3 billion in other claims. mong the five big banks that haven't resolved the litigation, representatives of Citigroup Inc., Credit Suisse Group's Credit Suisse First Boston Inc., Deutsche Bank AG and Merrill Lynch & Co. declined to comment. A Barclays PLC representative wasn't available to comment.

In a press release dated August 2, 2005, Canadian Imperial Bank of Commerce agreed to pay $2.4 billion to Enron investors who claimed the financial services company took part in a massive accounting fraud that led to the collapse of the energy giant. The settlement with Toronto-based CIBC (BCM) (CM) is the largest single action so far on behalf of Enron stock and bond holders, and brings the total payments in the case to $7.1 billion, making this the biggest class-action recovery ever. The settlement has been approved by CIBC directors and is subject to approval by both the University of California Regents and a federal judge in Texas.

In a press release dated June 15, 2005, JPMorgan Chase said Tuesday that it will pay $2.2 billion to settle investor allegations that it helped former energy giant Enron prop up its share price through a series of sham loans. The payout is the largest to date in Enron-related litigation, with more Wall Street settlements likely.

On June 10, 2005, Citigroup agreed to pay $2billion to Enron shareholders who were wiped out when the energy company collapsed in December 2001. The payment settles a class action brought by Enron investors led by the University of California. Lehman Brothers has already paid $223m and Bank of America has agreed $69m but JP Morgan Chase, CSFB, Merrill Lynch and Deutsche Bank are among others facing big payouts. UK banks Barclays and Royal Bank of Scotland are also exposed.

Until January 2005, the settlements include Lehman Brothers Holdings Inc., for $222.5 million, Bank of America Corp. for $69 million, Andersen Worldwide, the foreign arm of Arthur Andersen LLP, for $40 million and the January 2005 $168 million settlement from a group of Enron Corporation former directors.

The Enron former outside board members covered by the settlement admit no wrongdoing. Plaintiffs in the case accused directors of selling Enron shares after the company began to give false financial information to the public. The agreement to pay back some trading profits came even though a federal judge in Houston in 2003 dismissed insider trading and fraud charges leveled at the former directors. Insurance will pick up most of the directors’ cost, but under the terms of the agreement, the former Enron directors will personally pay $13 million. The settlements now total about $500 million.

In the Arthur Andersen settlement agreement, according to the Notice of Pendency and Partial Settlement from July 24, 2003, the parties reached an agreement-in-principle to settle the action. The Settlement resulted in the creation of a cash settlement fund in the aggregate principal amount of $40 Million.

The amount of any distribution to Settlement Class Members on a per share basis will depend on future Court proceedings.

The original complaint charges that defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder, by issuing a series of material misrepresentations to the market between January 18, 2000 and October 17, 2001, thereby artificially inflating the price of Enron common stock. Specifically, the complaint alleges that Enron issued a series of statements concerning its business, financial results and operations which failed to disclose (i) that the Company's Broadband Services Division was experiencing declining demand for bandwidth and the Company's efforts to create a trading market for bandwidth were not meeting with success as many of the market participants were not creditworthy; (ii) that the Company's operating results were materially overstated as result of the Company failing to timely write-down the value of its investments with certain limited partnerships which were managed by the Company's chief financial officer; and (iii) that Enron was failing to write-down impaired assets on a timely basis in accordance with GAAP. On October 16, 2001, Enron surprised the market by announcing that the Company was taking non-recurring charges of $1.01 billion after-tax, or ($1.11) loss per diluted share, in the third quarter of 2001, the period ending September 30, 2001. Subsequently, Enron revealed that a material portion of the charge related to the unwinding of investments with certain limited partnerships which were controlled by Enron's chief financial officer and that the Company would be eliminating more than $1 billion in shareholder equity as a result of its unwinding of the investments. As this news began to be assimilated by the market, the price of Enron common stock dropped significantly. During the Class Period, Enron insiders disposed of over $73 million of their personally-held Enron common stock to unsuspecting investors.