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Court: Enron shareholders can‘t proceed

Staff and agencies

21 March, 2007

By MICHAEL KUNZELMAN, Associated Press Writer Mon Mar 19, 6:54 PM ET

NEW ORLEANS - A federal appeals court ruled Monday that Enron Corp. shareholders cannot proceed with a class-action lawsuit against investment banks for their alleged role in the accounting fraud that led to Enron‘s collapse.

"As we have recognized, class certification may be the backbreaking decision that places ‘insurmountable pressure‘ on a defendant to settle, even when the defendant has a good chance of succeeding on the merits," the 5th Circuit opinion said.

Shareholders‘ attorneys argue that Merrill Lynch & Co., Credit Suisse Group and other investment banks that did business with Enron should be held liable for billions of dollars in damages.

"We think it is unfair and wrong under the law," he said. "The basic holding of the court is that even if the banks participated knowingly in a scheme to defraud investors in Enron‘s collapse, you cannot have a class action against the banks."

Lerach said he and other shareholders‘ attorneys are likely to appeal Monday‘s ruling to the U.S. Supreme Court U.S. Supreme Court "as quickly as possible." A trial for the shareholders‘ $40 billion lawsuit was set to start next month, but Lerach said the 5th Circuit‘s ruling will force it to be postponed.

Merrill Lynch spokesman Mark Herr said the company is pleased with the 5th Circuit‘s ruling, but he declined to make further comment.

The Securities and Exchange Commission already has won tens of millions of dollars in settlements with Merrill, JPMorgan Chase & Co. and Citigroup Inc.

Andrew Fastow, Enron‘s now-imprisoned former finance chief, testified in the shareholder litigation this fall. He acknowledged that some of the transactions Enron conducted with its investment banks created the false appearance of profits and cash flow.

Barclays Bank PLC also is named as a defendant in the shareholders‘ suit. "Barclays is very pleased with the 5th Circuit‘s ruling and grateful that the 5th Circuit agreed with its views," company attorney David Braff said.

The attorneys general supporting the shareholders are from Texas, Alabama, Arizona, Arkansas, California, Connecticut, Georgia, Hawaii, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maryland, Michigan, Minnesota, Mississippi, Montana, New Hampshire, New Jersey, New Mexico, North Dakota, Oklahoma, Oregon, Pennsylvania, South Carolina, South Dakota, Utah, Vermont and West Virginia.

By MICHAEL KUNZELMAN, Associated Press Writer Mon Mar 19, 6:54 PM ET