WASHINGTON, Aug 15 (Reuters) - The U.S. government’s top appellate lawyer on Wednesday came out against third-party, class-action lawsuits, potentially dealing a blow to former Enron shareholders who seek to sue banks that helped put together transactions before the energy trader imploded.
Solicitor General Paul Clement, who represents the federal government before the Supreme Court, filed a brief that supported defendants accused of wrongdoing in a separate U.S. Supreme Court case.
Former Enron shareholders are closely watching the Charter case and had called on the Bush administration to help hold Enron’s banking partners accountable. They had asked the solicitor general not to intervene.
The outcome of the Charter case, slated to be heard by the Supreme Court later this year, could determine whether Enron plaintiffs will be able to sue banks such as Merrill Lynch MER.N, Credit Suisse Group CSGN.VX and Barclays Plc BARC.L, that helped put together deals for what was one of the world's leading energy companies.
Enron at one time employed more than 20,000 people and claimed revenues of $111 billion in 2000. It imploded in 2001 amid allegations of accounting fraud and filed for bankruptcy.
Clement recommended the Supreme Court uphold a lower court decision that rejected Charter shareholders’ theory of so-called “scheme liability.” The shareholders want to be able to sue third parties when their actions help a company defraud investors.
But Clement also said the lower court erred to the extent it held that the law reaches only misstatements and omissions.
Dan Newman, a spokesman for the Enron shareholders’ law firm, Lerach Coughlin, said it was “a positive thing” that the U.S. Justice Department brief affirmed the shareholders’ assertion that scheme liability exists and deceptive conduct is actionable.
The U.S. Treasury Department, the Federal Reserve and the Office of the Comptroller of the Currency have already voiced displeasure with third-party class action suits.
By the close of business on Wednesday, more than a half-dozen groups had filed briefs supporting the companies, including the U.S. Chamber of Commerce, Securities Industry and Financial Markets Association, the Futures Industry Association and the National Association of Manufacturers. The deadline to file briefs was midnight on Wednesday.
“Such an outcome would make American companies less competitive, harm the domestic economy and discourage foreign companies from doing business with domestic companies, resulting in higher prices and fewer choices for American consumers,” said the manufacturing association, which represents small and large manufactures in every industry.
A group of former SEC chairmen, commissioners and officials and a number of academics also supported the defendants.
On the other side, Charter and former Enron shareholders have garnered support from congressional lawmakers.
The U.S. Securities and Exchange Commission had recommended that the solicitor general support plaintiffs in the Charter case. But Clement did not take the SEC’s position.
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