Nine investment banks added to defendant list in securities lawsuit

Monday, April 8th 2002, 12:00 am
By: News On 6

HOUSTON (AP) _ Nine investment banks financed lucrative schemes that helped Enron Corp. maintain its pre-collapse image as a profit powerhouse, according to attorneys who added the banks to a shareholder lawsuit Monday.

William Lerach, the lead attorney in the case, said the banks' knowledge of the questionable partnerships and other transactions gave them an inside view of Enron's financial condition as they sold securities to investors.

The 485-page amended complaint was filed Monday morning in the Houston federal court handling the case, according to the University of California, the lead plaintiff.

``Every bank bears significant complicity for their involvement,'' Lerach said.

The banks named in the suit are J.P. Morgan Chase & Co.; Citigroup Inc.; Credit Suisse First Boston USA Inc.; Canadian Imperial Bank of Commerce (CIBC); Bank of America Corp.; Merrill Lynch & Co.; Barclays Bank PLC; Deutsche Bank AG and Lehman Brothers Holding Inc.

The partnerships and transactions, backed by Enron stock and in part developed and funded by the banks, allegedly hid debt and inflated profits. Their ability to go unnoticed depended on a high stock price, since drops in shares triggered debt payments that would require Enron to issue more shares and reduce shareholder equity.

Enron shares started slipping from a high of $90 in August 2000, later invoking those triggers. It fell to less than a dollar by the time Enron descended into bankruptcy Dec. 2.

The suit also alleges that Kenneth Lay, Enron's former chairman and chief executive, sold $180 million in company stock in the three years leading to Enron's collapse, not the $101 million noted in public filings.

The $25 billion lawsuit originally was filed in December on behalf of large investors, which lost millions of dollars when Enron collapsed.

Original defendants included current and former Enron officials who sold more than $1 billion in stock from October 1998 through November last year and Arthur Andersen LLP, Enron's former auditor.

Lerach said subsequent investigation pointed to liability on the part of banks that were Enron's lenders and underwriters before alleged accounting abuses exposed last year fueled the company's implosion.

Citigroup spokesman Dan Noonan and Credit Suisse spokesman Pen Pendleton declined comment Sunday night. Other banks didn't return calls for comment.

New defendants also include two law firms that advised Enron on the partnerships and financial deals, Vinson & Elkins in Houston and Kirkland and Ellis in Chicago, and Andersen Worldwide.

Vinson & Elkins declined comment on the lawsuit. But the firm said in a statement that it remains confident that when the facts are known, ``it will be clear that Vinson & Elkins properly performed its professional responsibilities.''

Settlement talks with Andersen are continuing, but the firm's ability to pay has been questioned. Andersen has lost at least 132 public clients this year, most after the firm was indicted last month for shredding documents and deleting computer files related to Enron audits.