Enron Victims to Rally in Washington DC
In Wake of Meeting with Chairman Cox, Fraud Victims Seek Support from SEC and Congressional Leaders
May 14, 2007
HOUSTON, TX – Returning from a face to face meeting with Securities and Exchange (SEC) Chairman Christopher Cox, victims of the Enron fraud pledged to return to Washington to publicly respond to the SEC's decision in their case. At a critical moment in the Enron victims' pursuit of justice, the SEC will soon decide whether to weigh in with the Supreme Court on behalf of the individuals, retirees, Enron employees and others who were harmed by the fraud. In a letter to Chairman Cox, the group wrote,
“We sincerely appreciate your willingness to meet with us last week and listen to our stories of how our lives were affected by the Wall Street banks that orchestrated the Enron fraud.
“We hope you will take our experiences to heart and grant our request to support all investors, taxpayers and victims of corporate fraud by immediately reaffirming the SEC's longstanding support for the existence of scheme liability.
“We will return to Washington on or before June 12th, the day after briefs are due to the Supreme Court, to publicly comment on the SEC's ultimate decision. At that time, we hope you will be standing by our side, urging the Supreme Court to allow us to have our day in court.”
Internal documents and testimony revealed that several large Wall Street banks engineered sham transactions for Enron to fake profits and hide billions in debt, while simultaneously selling Enron securities to the public via false prospectuses and issuing misleading analyst reports recommending Enron stock. As a result of this fraud – the worst in American history – tens of thousands of innocent victims filed a class-action suit against the banks who orchestrated the fraud. Earlier this year, on the verge of going to trial, the 5th Circuit Court of Appeals issued a 2-1 decision that immunized the banks from liability. The victims have petitioned the U.S. Supreme Court to take their case.
The Supreme Court (in either the Enron case or in a separate case (Stoneridge Investment Partners, LLC v. Scientific-Atlanta, Inc, No. 06-43)) will soon decide whether or not the Enron victims have their day in court. The Court will decide if secondary actors that knowingly participate in defrauding investors can be held liable for their actions, even in the absence of false statements.
“The fraud committed by these banks robbed us of our careers, our savings, our retirement, our homes, and our peace of mind,” said former Enron employee Charles Prestwood. “Wall Street scofflaws must be held responsible when their fraud creates mayhem and misery on Main Street.” Prestwood, who maintained gas plants for over thirty years, retired from Enron in 2000 with a retirement account of more than $1 million – only to watch his retirement savings evaporate while the company froze access to his 401(k) account.
In the past, the SEC has consistently and repeatedly – including in the Enron case itself – supported the existence of liability for deceptive conduct in the absence of false statements, known as “scheme liability.” Given the SEC's early support for the case, it seems logical to assume that the agency would continue its support as the issue of scheme liability moves to the Supreme Court.
However, because the SEC has recently reversed long-standing pro-investor positions, victims of corporate fraud fear a similar reversal on the issue of scheme liability. In response to this disturbing anti-investor trend, the U.S. House Financial Services Committee will hold hearings next month to determine if the SEC is straying from its historic role of protecting investors.
The Enron victims and the broad coalition supporting their efforts are also urging congressional leaders to weigh in on their behalf. In a letter to Senator Chris Dodd (D-CT) and Senator Richard Shelby (R-AL), the parties' ranking members of the Senate Committee on Banking, Housing, and Urban Affairs, the group asked the Senators to “weigh in with the SEC, and ask the Commission to support all investors, taxpayers and victims of corporate fraud by immediately reaffirming the SEC's longstanding support for the existence of scheme liability.”
For more information about last week's visit to Washington by the Enron victims, please visit http://www.universityofcalifornia.edu/news/2007/may09.html.