Enron Ruling Exposes Corporate Advisors to Securities Fraud Liability

In December 2002, The United States District Court for the Southern District of Texas issued an approximately 300-page ruling in the shareholder class action lawsuit arising from the collapse of Enron Corp. The ruling was on the various motions to dismiss filed by the investment banks, law firms and others that plaintiff shareholders have alleged participated in Enron's collapse. The Court determined "secondary actors may be liable for primary violations under an alleged scheme to defraud if all the requirements for liability under Rule 10b-5 of the Securities & Exchange Commission have been satisfied.

The Court found that corporate advisors such as Enron's accountants, chief corporate counsel and certain underwriters could be deemed primary participants in a fraud if they constructed corporate transactions with the knowledge that such deals would mislead investors about the company's finances. In fact, with regard to Enron's corporate counsel, the Court stated "Vison & Elkins was necessarily privy to its client's confidences and intimately involved in and familiar with the creation and structure of its numerous businesses, and thus, as a law firm highly sophisticated in commercial matters, had to know of the alleged ongoing illicit and fraudulent conduct."

For more information concerning Corporate Fraud and Security Litigation, please contact Scott D. Simpkins: sdsimp@climacolaw.com