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A pair of law firms and nine investment banks have one thing their former client and business partner, Enron Corp., doesn’t have these days: deep pockets. And that fact, according to securities law experts, makes them an attractive new target for plaintiffs’ lawyers in the securities fraud class action brought by institutional investors against the now-bankrupt Enron and its accounting firm, Arthur Andersen. Texas-based Vinson & Elkins and Chicago’s Kirkland & Ellis — along with the investment banks — were added Monday to the securities suit in an amended complaint filed in Houston. In San Francisco, lead plaintiff’s attorney William Lerach unveiled the new complaint at a morning news conference at the University of California, San Francisco. The UC Regents is the lead plaintiff in the suit. “It’s entirely predictable,” said Joseph Grundfest, former Securities and Exchange Commission member and a professor at Stanford Law School. “Plaintiffs can’t get paid unless they find deep pockets, and right now, Enron and Andersen are very shallow pockets.” The move, expected since last week, is another stinging and potentially expensive blow for Vinson and Kirkland. But Lerach, a partner in the San Diego office of Milberg Weiss Bershad Hynes & Lerach, has a few major hurdles to overcome if he wants to tap the law firms’ bank accounts. He has retooled the original complaint from a relatively trim 76 pages aimed exclusively at Enron and Andersen to a 500-page doorstop that attempts to detail the culpability of the banks and firms. And securities lawyers say such excruciating detail will be necessary for the plaintiffs’ lawyers to get around a U.S. Supreme Court decision that sets a high bar for liability by lawyers and bankers in securities fraud cases. “The court’s going to be looking for an extreme amount of detail demonstrating the required level of scienter against a law firm, and it must be sufficient for the court to draw an inference of fraud,” said Shirli Fabbri Weiss, a San Diego-based Gray Cary Ware & Freidenrich securities partner. Lerach claims the firms and the investment banks created and secretly financed a series of partnerships that Enron used to hide debt, prop up revenues and ultimately inflate its stock. The investment banks named in the suit are J.P. Morgan Chase, Citigroup, Credit Suisse First Boston, Canadian Imperial Bank of Commerce, Merrill Lynch, Bank of America, Barclays Bank, Deutsche Bank and Lehman Brothers. The decision to add new defendants comes as the two most obvious targets of the suit — Enron and Andersen — are fast losing their ability to ensure a big payday if the class action is successful. Insurance carriers backing Enron’s directors and officers have signaled they want a release from liability if fraud is proved — a move that could take hundreds of millions of dollars off the table. And accounting firm Andersen, under indictment for its role, is also fighting to stave off financial collapse. Lerach doesn’t shy away from saying the banks and firms are where the money is: “It’s true that investment banks have a lot of money. But it’s also true that investment banks have made a lot of money from Enron.” Lerach said plaintiffs could ultimately seek $25 billion to $30 billion in damages and recovered losses. The University of California lost $145 million on its Enron stock, he said. Other plaintiffs include the Washington State Investment Board and several private pension funds. In addition, San Francisco City Attorney Dennis Herrera said Monday that the San Francisco Employees’ Retirement System has joined the list of plaintiffs. Vinson released a statement in response to the suit: “We are reviewing the complaint and are not in a position to comment in detail. However, as we have said from the beginning, we are confident that there is no legitimate basis, either in the facts or in the law, to include Vinson & Elkins in this litigation.” For its defense, Vinson has hired John Villa, a partner at Williams & Connolly in Washington, D.C. The firm also has retained Columbia University Law School ethics expert John Coffee Jr. Coffee also prepared a statement on behalf of Vinson that gives a strong clue that the firm will rely heavily on the Supreme Court case giving lawyers protection in securities cases. The complaint “strikes me as an attempt to outflank the Supreme Court’s clear rule that only the maker of a statement can be held liable for securities fraud,” Coffee said in his statement. “Under well-established precedent, a lawyer is not liable for his client’s statements when the lawyer has acted only to counsel, advise or edit the disclosures made by his client. While this rule might be legislatively changed, it is inappropriate to ask a court to reverse it retrospectively,” Coffee wrote. In essence Coffee is saying that Lerach will have to find a way around Central Bank of Denver v. First Interstate Bank of Denver, 92-854. The high court’s 1994 opinion in the case holds that plaintiffs can’t sue professionals — including bankers and lawyers — for aiding and abetting just because they worked on a deal. Lerach will have to somehow show the lawyers and bankers knowingly lent their expertise to Enron executives to enable them to carry out fraudulent acts. For his part, Lerach said he is ready to meet the higher standard: “Vinson & Elkins was as close to Enron as anyone could have been.” Lerach contends the lawyers involved are not unsophisticated “automatons” at the mercy of a client’s demands. “They are not a bunch of innocents drawing up deeds of trust,” Lerach said. “What do they think they were doing?” Vinson was Enron’s primary outside counsel. Kirkland, Lerach said, represented several of the controversial secret partnerships created by Enron and the banks. Lerach acknowledged that a lot depends on how widely the presiding judge interprets the securities laws that apply to the Enron case. “Securities laws were meant to cast a very broad net,” he said. He also may be counting on past cases where firms have been called on the carpet in securities fraud actions. In 1993, for example, New York-based Paul, Weiss, Rifkind, Wharton & Garrison paid the Resolution Trust Corp. $45 million in connection with its representation of the failed savings and loan CenTrust Savings Bank. Though the CenTrust case predates the Supreme Court’s ruling in Central Bank, one of the attorneys involved said Paul Weiss would likely have faced liability no matter what the high court ruled. The key was the level of involvement by the Paul Weiss lawyer who worked with CenTrust. “In a lot of these cases, the lawyer will get charged for forgetting who his client is,” said Joseph Beasley, of counsel at Miami’s Josephs, Jack, Miranda, McCullough & McKeown. Beasley represented three board members of the defunct bank and negotiated modest settlements for his clients. “You’re hired by the board, and you’re involved. But sometimes what they want to do is more to enrich themselves as opposed to looking out for what is in the best interest of the shareholders,” Beasley said. In the Enron debacle, proving such an intimate relationship between the firms and the company will be just a matter of putting the facts before the court, Lerach contends. He said Enron executives got significant help from their lawyers and bankers: “This fraud could not have been accomplished by a few executives.”

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