Enron Suit Expands to Include Banks

April 8, 2002 (PLANSPONSOR.com) - Casting an ever-widening net in a bid to recoup the billions lost in the Enron debacle, lawyers have amended an October 2001 lawsuit by alleging that nine banks and securities firms and two national law firms schemed to defraud Enron shareholders and creditors.

According to the Wall Street Journal, lawyers added more than three dozen defendants to the suit, which originally lodged charges against Enron, Arthur Andersen, and a group of Enron executives, charging that they reaped a $1.2-billion windfall while defrauding investors.

The Regents of the University of California, which lost nearly $150 million from Enron, is the lead plaintiff in the lawsuit, filed in Houston federal court.

Enron’s ‘Phony’ Deals

The 502-page revised suit charges that top US banks and securities firms helped Enron do phony deals in order to artificially inflate Enron’s earnings, and propped up the failing company with loans to protect their existing Enron investments.

For example, according to news reports, in December 1999, Merrill Lynch helped create LJM2, one of the partnerships credited with helping fuel Enron’s downfall.

Enron needed an entity to buy company assets to pump up year-end profits, so Merrill Lynch, CIBC, Deutsche Bank, Credit Suisse and Lehman Brothers invested about $14 million while JP Morgan offered a $65-million loan, according to news reports.

“This fraudulent scheme could not have been and was not perpetrated only by Enron and its insiders,” the $25-billion lawsuit states. “It was designed and/or perpetrated only via the active and knowing involvement of” Enron’s law firms, banks and accounting firm.


To pay them back, the suit alleges that some top executives from the new defendants were invited to invest in Enron partnerships that reaped huge returns. Those partnerships eventually helped lead to Enron’s collapse, the lawyers charged.

Enron invited partnerships or entities connected to JP Morgan, CIBC, Citigroup, Deutsche Bank, Credit Suisse, Lehman Brothers and Merrill Lynch to invest $150 million in LJM2 with a promise of a return of 30% or more, according to news reports.

The complaint names the following institutions:

  • Merrill Lynch & Co .
  • Credit Suisse First Boston
  • Citigroup Inc.
  • Deutsche Bank AG
  • JP Morgan
  • Chase & Co.
  • Canadian Imperial Bank of Commerce
  • Bank of America Corp.
  • Barclays Bank PLC and
  • Lehman Brothers Holdings Inc.

The lawsuit, as expected, also names two of Enron’s outside law firms, Houston’s Vinson & Elkins and Chicago ‘s Kirkland & Ellis.

Vinson & Elkins, which has worked with Enron since the energy company’s formation in 1985, provided the legal advice on many of Enron’s now questionable partnerships and it reviewed Enron’s filings with the Securities and Exchange Commission.