JP Morgan Chase & Co, Citigroup Inc, Merrill Lynch & Co and Credit Suisse First Boston will be named as defendants in suits seeking billions of dollars over Enron Corp's collapse, people familiar with the litigation said.
Enron investors and former employees have decided to add law firms and as many as eight banks on Monday when they amend their suits, alleging fraud, against the energy trader and its former auditor, Arthur Andersen LLP, the people said.
While the success of the expanded lawsuits is far from assured, legal experts said, they are an example of the way the Enron case has tarnished any institution that came into contact with the failed Houston company. Enron lost US$68 billion in market value and plunged into bankruptcy after revealing financial misstatements.
"It's going to be a tough case," said Joel Seligman, a securities law expert and dean of the Washington University School of Law in St. Louis. The plaintiffs have to prove a direct link between a defendant and information that shareholders relied on, he said.
JP Morgan and Citigroup were possible targets because they gained detailed knowledge of Enron's finances as lenders and vendors of financial services, plaintiffs' lawyers have said.
Merrill Lynch and Credit Suisse were potential defendants for promoting sales of Enron stock while the company misstated its income and debt, the lawyers said.
Spokesmen Joe Cohen of Merrill Lynch, Pen Pendleton of Credit Suisse and Adam Castellani of JP Morgan declined to comment on the litigation.
"We believe that our business dealings with Enron were entirely appropriate and therefore we think there is no merit to the lawsuit," said Citigroup spokesman Daniel Noonan.
Plaintiffs' lawyers have declined to identify any additional defendants before the amended complaint is filed. Trey Davis, a spokesman for the lead shareholder plaintiff, the Regents of the University of California, also declined to comment.
Shareholders plan to announce their expanded suits at a Monday news conference in San Francisco.
The plaintiffs are looking for richer sources of damages with Enron in bankruptcy and Arthur Andersen fighting for survival.
The accounting firm, the nation's fifth largest, has lost scores of clients and is under federal indictment on an obstruction of justice charge for what the government says is massive illegal shredding of Enron audit documents.
The two main groups of plaintiffs, Enron shareholders and employees whose pension funds lost money on Enron stock, face difficult hurdles in proving the banks or law firms are liable.
Plaintiffs claim Enron and Andersen made misleading statements in annual financial reports. The Supreme Court has held that "a material misstatement" or "manipulative act" is enough to create liability, but "giving aid to a person who commits a manipulative or deceptive act" isn't enough.
A bank or law firm might escape liability if it said nothing publicly to mislead, even if it knew Enron's statements were false, said Seligman.
Some lower courts have ruled that entities, such as banks or law firms, are liable for damages if they substantially contributed to the fraud, said Robert Prentice, a professor of business law at the University of Texas at Austin. Federal judges in Texas, who will consider the shareholder and pension funds class actions, haven't decided which way to rule, he said.
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