Articles Posted in Enron

This week, the US Supreme Court decided not to hear the most recent appeal filed by Enron Corp’s former CEO Jeffrey Skilling to have his criminal conviction overturned. The justices offered no comment for why they decided not to review the U.S. 5th Circuit Court of Appeals’ ruling that turned down Skilling’s legal challenge.

A Houston jury had convicted Skilling in 2006 on 19 criminal counts for his role in orchestrating the massive corporate fraud crime that led to the demise of the energy trading giant. Over 4,000 company employees found themselves out of work when Enron filed for bankruptcy in 2001. Many of them lost their life savings. Meantime, investors sustained losses in the billion of dollars. (In 2008, Enron investors and shareholders received their respective shares of over $7.2 billion from financial institutions accused of playing a part in the company’s collapse. Some 1.5 million entities and people were eligible.)

Prosecutors had accused Skilling of taking part in a scam to inflate Enron’s share price by concealing the company’s true financial shape from the public. They claimed that he engaged in accounting tricks, “hocus-pocus, trickery… half-truths… and outright lies.” Although Skilling was convicted of securities fraud, insider trading, making false statements to auditors, conspiracy, and other crimes, he maintains that he didn’t commit any crimes. He also contends that he never attempted to profit from Enron’s collapse. Skilling is currently serving a sentence of over 24 years in prison.

Many financial firms settled claims filed by those defrauded in the Enron debacle. Meanwhile, many more Enron securities fraud cases have been dismissed by a court system riddled with special interest influence. No financial firm has been held liable and certain individuals at those firms were held liable only to have their convictions reversed. Thus, perhaps the largest, most notorious and most brazen fraud ever perpetuated by a publicly traded firm against its own shareholders will end not with a bang, but with a whimper.

Earlier this month, securities charges against Deutsche Bank Securities Inc. were dropped in the U.S. District Court for the Southern District of Texas. The financial firm was accused of fraudulently getting two entities to buy beneficial ownership interests in Osprey Trust. The special purpose entity was allegedly secured using worthless investments bought from Enron. The plaintiffs contend that the assets were “dumped” into Osprey as part of a bigger scheme to defraud investors and manipulate Enron’s financial statements.

The court said that because the plaintiffs did not specify any affirmative misrepresentation made by a Deutsche Bank official, they did not and “cannot plead with particularity either scienter on the part of a Deutsche Bank speaker or writer or reasonable reliance … on a claimed misrepresentation.” The court also said that the financial firm’s stated motive for alleged defraud, which allegedly was for tax benefits and high fees, is a common incentive among financial firms and their officers and therefore is not enough for stating “a claim for fraud” under the laws of Texas and New York.

Related Web Resources:
Newby, et al v. Enron Corporation, et al., U.S. District Court for the Southern District of Texas
The Fall of Enron, Chron.com Continue reading

Joseph Hirko, the ex-Enron Broadband Chief Executive Officer, has been sentenced to a prison term of 16 months for Texas securities fraud. Hirko pleaded guilty to wire fraud a year ago for giving out false information to improve Enron’s financial figures.

The former Enron Broadband CEO and others knew that the broadband operating system was still in development yet Hirko promoted it in press releases and during analyst conferences in order to to elevate Enron’s stock price.

The US Justice Department says Hirko consented to give up approximately $7 million, which will be given through the SEC’s Enron Fair Fund to Enron victims. As part of Hirko’s plea agreement, Enron Creditor’s Recovery Corp. will get $1.7 million from him.

The sentence issued by US District Court Judge Vanessa Gilmore is the maximum possible under federal guidelines for the wire fraud charge. If Hirko had been found guilty during trial, he could have been sentenced to years in prison.

The former Enron Broadband CEO and several others were accused of numerous activities connected to the artificial inflation of the company’s stock. Chief Operating Officer Kevin Hannon and Hirko’s co-CEO, Ken Rice, also pleaded guilty.

Hirko and four other defendants, Rex Shelby, Kevin Ward, Scott Yeager, and Michael Krautz, went to trial in 2005. They were acquitted on certain charges but the jury deadlocked on the rest of the charges. Retrials were scheduled.

A jury acquitted Krautz and convicted Howard, but Judge Gilmore threw out the latter’s conviction on the grounds that the government applied a flawed legal theory. Howard then pleaded guilty. The Supreme Court ruled that because the jury acquitted Yeager of other charges connected to the same alleged scam, he could not be retried.

Related Web Resources:
Former Broadband CEO given 16-month sentence, Chron.com, September 28, 2009

Ex-Enron Broadband Co-CEO Sentenced for Wire Fraud, Bloomberg, September 28, 2009
Read May 15, 2000 Enron Broadband press release, HighBeam.com
The Fall of Enron, Houston Chronicle Continue reading

Usually lawsuits must be filed within a few years after the wrongful acts, or when one knew or should have known of the wrongdoing. For example, federal and most state securities laws require lawsuits to be filed by 2 or 3 years after the problem is known or made public, but no later than 5 years in any event.

However, if a class action is filed on behalf of shareholders, this “tolls” the limit for filing a case for those the case seeks to represent. If, for example, if a shareholder decides to “opt out” of the class action, or it is later decided the class action can not be maintained, the “window” for such shareholders to file their own cases remains open. (Caution: The remaining time to file a case may then be quite short.)

WorldCom Inc. bondholders were in this position. A class action was filed, including a class of bondholders. Some of these bondholders decided to file their own case before the class was “certified” (when the court decides whether the class members have claims common to all of them, etc.) Using strange reasoning, the federal judge presiding over their case decided that, because these bondholders did not wait for the class to be certified, they could not use the tolling benefit of the class action. Because the case was otherwise filed too late, it was dismissed.

Defrauded Enron shareholders recently lost again, this time as victims of federal judges who seem intent on helping Wall Street crooks rather than Wall Street victims. With their case before the U.S. Supreme Court, the Enron shareholders lost yet again when the SEC and Bush Administration, who had indicated they would intervene, missed a deadline. Now, three former SEC Commissioners are asking the Supreme Court to allow them to intervene to help.

In 2001, the total value of Enron shares plummeted from over $80 billion to almost zero. Enron officials and its auditors were indicted, several persons were convicted and some are now serving jail terms. The auditing firm of Arthur Anderson was forced to close. The scandal then turned to several Wall Street firms which are claimed ot have played a large role in assisting Enron to falsify its books.

Several individuals and firms were accused – and four former Merrill Lynch Brokers were convicted of by a jury – for arranging loans to appear as sales in order for Enron to book the loans as profits. Yet, just as the Enron shareholders’ claims against Merrill Lynch were headed for trial, business-friendly appointed appellate judges dismissed the case.

According to reports, the SEC asked the Justice Department’s Office of the Solicitor General to file an amicus curiae (friend of the court) brief to U.S. Supreme Court in support of the Enron investors’ position in a seminal case involving “scheme liability” under a key provision of the federal securities law.

However, lawyers for the Justice Department failed to honor the SEC’s request. After the deadline for such briefs was missed, a spokesman for the U. S. Solicitor General’s Office confirmed that the brief was not filed, while declining to say “whether or when we would file something in the future.”

The case, which has wound its way to the U.S. Supreme Court, was filed against Wall Street banks and brokerage firms for their alleged roles in assisting Enron to defraud its shareholders. Trial was eminent in a Houston Federal Court when a Court of Appeals in New Orleans intervened and said the Securities Exchange Act does not allow such claims. (Congress has forbid all class action claims by investors except under the federal securities laws.)

A coalition of consumer and labor groups that are plaintiffs in the shareholder litigation against Enron Corp. say that they are asking the Securities and Exchange Commission to talk to the U.S. Supreme Court on their behalf.

The University of California is a lead plaintiff in the case, and its attorney, Christopher Patti, says the shareholders deserve to have their case presented during trial before the Supreme Court. He also said that he felt that the law was broad enough so that parties, such as financial institutions that were active, key, and consenting participants in the Enron fraud case and had intentionally engaged in deceptive conduct to purposely mislead investors, could be included.

On May 8, a group of Enron shareholders that claim that the energy trading giant allegedly defrauded them sent a letter to the SEC asking it to file an amicus brief with the high court explaining why banks and other parties took part in Enron’s fraudulent scheme and should be held accountable.

The Enron Corp. shareholders that are suing three big investment banks for their alleged roles in helping Enron hide its failing financial position have petitioned the U.S. Supreme Court to look at a ruling made by the U.S. Court of Appeals for the Fifth Circuit that reverses the certification of a single plaintiff case. The court had ruled on March 19 that while Enron had a duty to its shareholders, banks do not.

The appeals court concluded that the plaintiffs did not have a right to a presumption of reliance on the banks’ failure to reveal their alleged participation in the Enron controversy. It also ruled that the plaintiffs do not have a right to the presumption of reliance afforded by the “fraud-on-the-market” concept.

In their certiorari petition, filed by the University of California Regents on behalf of Enron shareholders, the plaintiffs say that the Supreme Court needs to review the case to resolve a “clear conflict” in the circuits and lower courts about the meaning of so-called “scheme liability.” They also said that the appeals court decision was not correct.

The U.S. Securities and Exchange Commission filed a complaint on Wednesday against Rex Rogers, the former associate general counsel at Enron, and Jordan Mintz, the former general counsel for Enron’s finance group, with civil violations of securities laws because of omitting or fudging regulatory filing disclosures.

The SEC alleges that Mintz engaged in fraud by arranging the murky disclosure of Enron’s repurchasing of a power plant in Brazil from an LJM partnership that was run by former Enron finance chief Andrew Fastow. The SEC claims that Mintz knew that LJM had bought the plant with the understanding that it would sell it back to Enron and that this wiped out the sale’s legitimacy.

Mintz is also accused of delaying the closure of the resale for a number of months until after Fastow had sold his interest in LJM Partnerships so that Enron wouldn’t have to reveal that the deal was done with an Enron officer. Rogers is also being charged with not disclosing all the details of this deal.

As class actions against investment firms face dismissal, attorneys for investors plan to go forward with claims for individual shareholders against those same firms. After the U. S. Court of Appeals for the Fifth Circuit decided that cases in Houston against Merrill Lynch and other investment banking firms could not go forward as class actions, the door was left open for victims of Enron stock fraud to file their own claims in court or arbitration against these investment firms.

The class actions stopped the clock for filing individual claims against the defendants until appeals are completed. Also, through the class actions substantial information was learned regarding the role of these investment firms in the Enron debacle.

Meanwhile, that same Court of Appeals affirmed a district court’s order allowing Texas accounting regulators to gain access to confidential discovery material in the Enron Corp. shareholder litigation (Newby v. Enron Corp., 5th Cir., No. 05-20462, 3/16/06). The massive amounts of discovery material related to the Enron litigation led to a stipulation by parties that discovery be housed on a Web site. The district court overseeing the litigation issued a confidentiality order covering the deposition transcripts and other material, barring disclosure except to parties, their counsel, witnesses, a depository administrator, a court-appointed mediator, and a few others.

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