NEW YORK (Reuters) - A Toronto investment firm that has spent 15 years suing Enron Corp’s banks to recoup losses on bonds it bought shortly before the energy company went bankrupt may pursue a lawsuit seeking damages from three of those banks, a U.S. judge ruled on Friday.
Silvercreek Management Inc claimed to suffer heavy losses on more than $100 million of Enron bonds it bought less than two months before Dec. 2, 2001 bankruptcy.
It sought to hold Credit Suisse Group AG (CSGN.S), Deutsche Bank AG (DBKGn.DE), Bank of America Corp’s (BAC.N) Merrill Lynch unit, and former Enron Chief Executive Officer Jeffrey Skilling liable for overseeing many sham and off-balance-sheet transactions that fueled Enron’s demise.
In a 43-page decision, U.S. District Judge Paul Oetken in Manhattan said Silvercreek and its affiliates may pursue claims that the banks aided Enron’s fraud and conspired to commit fraud.
He cited “specific and wide-ranging” allegations that the banks knew Houston-based Enron was hiding billions of dollars of debt and using sham transactions to bolster its bottom line.
Though Silvercreek’s allegations “do not plead a formal, back-room agreement among all defendants and Enron,” they are “sufficient to state a conspiracy claim,” Oetken wrote.
Some claims were dismissed. The judge said Silvercreek may also pursue a fraud claim against Skilling, citing his alleged knowing and direct involvement in Enron’s financial misconduct.
Credit Suisse and Skilling’s lawyer Jeffrey Barker declined to comment. Lawyers for Deutsche Bank and Bank of America did not immediately respond to requests for comment.
“Given that the banks’ motions to dismiss were largely denied, the clients are pleased with the outcome,” Scott Hessell, a lawyer for Silvercreek, said in an email.
Silvercreek’s case began in Manhattan, but was moved to a Houston court that handled -- and has completed -- most post-bankruptcy Enron litigation. A panel of federal judges moved it back to Manhattan at Silvercreek’s request last June.
Enron once ranked seventh on the Fortune 500 list of large U.S. companies, and its demise was the basis for the 2005 Oscar-nominated documentary “Enron: The Smartest Guys in the Room.”
Several executives went to prison. Skilling is serving a 14-year prison term for fraud and other offenses, and eligible for release in February 2019, federal prison records show.
The case, which originally named Citigroup Inc as a defendant, is Silvercreek Management Inc et al v Citigroup Inc et al, U.S. District Court, Southern District of New York, No. 02-08881.
Reporting by Jonathan Stempel in New York; Editing by Lisa Shumaker