Shareholders in Enron are to unveil their vastly expanded class action lawsuit today. If successful, it could bring a heavy financial toll to a long list of financial institutions that worked closely with the failed energy trading giant, including six large investment banks.
Details of the suit, which will be formally filed in Houston, Texas, this morning, have been leaking out for several days, triggering alarm bells in the executives suites not just of the banks – which are expected to include Barclays – but also of two US law firms and the international management consultants McKinsey and Co.
Anxious for a final award in excess of $1bn, the shareholders decided early this year to revamp their initial suit, filed last December, that targeted only some senior Enron executives, and its now struggling auditors, Andersen. The longer list of defendants expands the possible monetary pot.
Those banks named in the suit, according to reports, will be Merrill Lynch, JP Morgan Chase, Credit Suisse First Boston, Deutsche Bank, Citigroup and Barclays. The plaintiffs will assert that all bear some responsibility for the meltdown that became the biggest US bankruptcy in history.
An eventual ruling for the plaintiffs, who are also targeting between 35 and 45 officers and directors of Enron and the same number from Andersen, could badly damage the defendants. Legal experts are sceptical, however, that a judge will accept the central issue of their liability in the debacle.
Also expected to be named are two large US law firms, Vinson & Elkins of Houston and Kirland & Ellis of Chicago. Vinson has already denied culpability.
"You can't hold an outsider or lawyer responsible for something he didn't create," said Joseph Jamail at Vinson, adding that his firm "was not involved in making decisions of any kind for these people – of any kind. These are all business decisions."
Further complicating the legal morass are revelations that two investment bankers from CFSB not only helped Enron set up one of the off-balance sheet entities that allegedly helped it distort its financial statements, but also served as directors of one of those entities.
The two men, Laurence Nath and Dominic Capolongo, were appointed as board members at Atlantic Water, one of those entities created by the former chief financial officer at Enron, Andrew Fastow.
Questions are meanwhile being asked about the 15-member creditors' committee that is leading efforts to recoup money from Enron. On that committee are two of the largest creditors, JP Morgan Chase and Citigroup. Their positions may cease to be tenable, however, if they are named as defendants in a shareholders class action suit.
Leading the investor camp is the Board of Regents of the University of California. The university lost $145m (£102m) after Enron went under.Reuse content