The Supreme Court justices have put off hearing a case that could determine whether banks should be held directly liable for helping Enron with its accounting fraud.
In the waning days of their 2006 term, the justices have set Regents of the University of California v. Merrill Lynch aside. A somewhat similar case that has been lumped together with the Enron case in the minds of government officials and investor advocates is scheduled to be heard by the justices this fall. Enron shareholders are still hoping the cases will be heard together to test their theory that so-called secondary actors — such as banks, audit firms, or vendors — should be considered equally culpable for securities violations.
The Regents of the University of California, the lead plaintiff in the Enron case, had requested that the Supreme Court not take up the case during this term but hear it with the StoneRidge v. Scientific-Atlanta, spokesman Trey Davis told CFO.com. The justices’ decision to delay any action on the Enron case keeps that possibility open, he added.
In the StoneRidge case, the shareholders of Charter Communications say the cable company’s vendors are just as responsible for an alleged sham transaction involving behind-the-scenes dealings as the cable company itself. The case has garnered particular attention because Enron shareholders pressured the Securities and Exchange Commission to give its opinion on the merits of the plaintiffs’ case.
Indeed, following a meeting between the shareholders and SEC chairman Christopher Cox, the commissioners reportedly voted 3-2 to ask the U.S. solicitor general to file a “friend of the court” opinion on the side of shareholders in the StoneRidge case. Enron shareholders had lobbied Cox to take their side and reinforce a previous opinion by the SEC — written before he took office — that companies that indirectly take part in a deceptive scheme can be considered a “primary violator” of the fraud.
Solicitor General Paul Clement, however, let the deadline for submitting an amicus brief on behalf of the plaintiffs pass by without giving the government’s opinion. According to various press reports, a White House lawyer told Clement that President Bush believes cases like the one involving the banks with Enron ties should be determined by the SEC, not shareholders. There is a separate deadline for filing an amicus brief on behalf of the defending banks.
The shareholders’ suit against Merrill Lynch, Barclays, and Credit Suisse — which had been set for a trial this past spring — hit a roadblock earlier this year when a Fifth Circuit three-judge panel decided to reverse a lower court’s decision for class certification.