Enron Plaintiffs Get More Support
Tuesday, July 31, 2007
Two key Democratic lawmakers yesterday became the latest federal officials seeking to intervene in a Supreme Court case that could determine whether investors in Enron and other fraud-ridden companies can recover money from third parties.
House Financial Services Committee Chairman Barney Frank (D-Mass.) and House Judiciary Committee Chairman John Conyers Jr. (D-Mich.) asked to file court papers that would support shareholders' right to sue bankers, lawyers, accountants and business partners who knowingly took part in fraud schemes but who may not have made public statements about them at the time.
That issue is worth billions of dollars to corporate America, and it has touched off fierce debate within the Bush administration and among investors.
Earlier this year, the five-member Securities and Exchange Commission voted to support shareholders in the case. The Treasury Department and President Bush opposed the move, however, arguing that it would expose businesses to too many risks and put U.S. companies at a disadvantage to foreign rivals.
After receiving that feedback, U.S. Solicitor General Paul D. Clement, who speaks on behalf of the administration before the Supreme Court, decided not to file a friend-of-the-court brief supporting the shareholders. The administration could still file court papers backing the third parties in the case, an issue on which investor groups and plaintiff lawyers are mobilizing.
"The Solicitor General's decision to follow the political and policy directives of the President rather than to support the Commission's legal position plots a dangerous course," Frank and Conyers wrote in a 24-page legal filing yesterday.
A bipartisan group of former SEC commissioners recently sought to intervene to support investors in the case. More than 30 state attorneys general filed court briefs on behalf of shareholders earlier this year.
The case, scheduled to be heard by the Supreme Court on Oct. 9, involves the ability of investors in Charter Communications to proceed with lawsuits against business partners, including Motorola and Scientific-Atlanta. It is being watched closely for its impact on the long-running effort by shareholders and former Enron employees to sue investment banks.
The court filing came on the same day that several Enron investors who lost money after the energy trader collapsed in 2001 amassed outside a Texas courthouse, asking Sen. John Cornyn (R-Tex.) to urge President Bush not to support the banks in the legal battle. Cornyn, who represents Houston, where Enron is based, and who has been a strong Bush administration ally, has long supported the notion that third parties could be held liable for knowingly taking part in fraudulent acts, a spokesman for the lawmaker said.
The investors are scheduled to hold a news conference in Washington today. In a letter released yesterday, they implored the administration not to file court papers supporting opponents in the dispute.
The case, they wrote, "will determine whether tens of thousands of Enron victims robbed of our careers, our savings, our retirement, our homes, and our peace of mind can ultimately secure our day in court. Equally important, preserving the ability to hold accountable anyone who knowingly defrauds innocent investors like us will keep U.S. markets the strongest and safest in the world."
Opponents said the shareholders' arguments could end up hurting investors. Allan Hubbard, director of the President's National Economic Council, said in June that society is already "overly litigious . . . and that is very harmful for our economy and very harmful for investors."