Union officials, state regulators and people who lost retirement savings in the collapse of Enron Corp. urged the Securities and Exchange Commission on Wednesday to support the position of shareholders suing Wall Street banks for damages in a case before the Supreme Court.
The Enron shareholders’ $40 billion lawsuit contends that Merrill Lynch & Co., Credit Suisse Group and Barclays PLC should be held equally liable as Enron as participants in the energy company’s accounting fraud. Thirty states took the shareholders’ side.
The shareholders appealed to the Supreme Court after a federal appeals court in New Orleans ruled in March that they cannot proceed with their class-action lawsuit.
“The SEC must now stand firm and vigorously to protect the public,” Andy Stern, president of the Service Employees International Union, said at a news conference. Silence by the agency on the issue “would be both deafening and dangerous,” he said.
A number of people whose retirement savings or investments dissolved in Enron’s collapse — like 63-year-old company retiree Charles Prestwood, who lost $1.3 million — also spoke and urged the SEC to act. Prestwood said he was praying for justice, so “we can get our day in court.”
The agency has not yet filed supporting briefs on either side in the case. SEC Chairman Christopher Cox met Wednesday evening with several Enron victims. He told reporters beforehand that the SEC’s role was to ensure that they are able to “recover their losses to the maximum extent possible through the judicial process.”
Late last year, attorneys for Merrill Lynch asked the SEC to file a brief in the appeals court case in support of the investment firm’s position that on legal grounds, it should not be held equally liable.
To the chagrin of investor advocates, the SEC intervened on the side of the Bush administration and corporations — against public pension funds and 32 states and territories — in a separate case heard by the Supreme Court in March that could make it harder for shareholders to get lawsuits against companies for alleged fraud put before juries.
“Today we’re asking the SEC: ’Whose side are you on?”’ said Teamsters President James Hoffa.
Enron, once the nation’s seventh-largest company, entered bankruptcy proceedings in December 2001 when accounting tricks could no longer hide billions of dollars in debt. The collapse wiped out thousands of jobs, more than $60 billion in market value and more than $2 billion in pension plans.
The attorneys representing the shareholders argue that the investment banks played key roles in Enron’s “scheme to defraud.” Under a 1995 law, a single defendant can be held liable for paying the entire amount of damages if the judge determines that the defendant knowingly violated the securities laws.
The SEC proposed criteria in 2002 in legal arguments to determine liability of participants in a deceptive scheme. The idea expounded by the SEC was that deception in the form of a false picture of a company’s revenues can be made by acts as well as words.
That means a participant in a scheme would do more than aid and abet it by engaging in a transaction whose main purpose is to create such a false financial picture, and therefore should be held liable.
The SEC pursued Merrill Lynch, JP Morgan Chase & Co. and Citigroup Inc. over their role in Enron’s accounting scheme, winning tens of millions of dollars in settlements with the investment powerhouses in 2003.