Plaintiffs' Memorandum of Law in Opposition to Motions to Dismiss ...

More documents

Recommendations

Info

For example, plaintiffs' introduction includes: "Year-End 97 Crisis." See 9-11; see also 613-617. This section details how Enron's year-end 97 financial statements, which were incorporated into the documents used to sell the Notes, were falsified by the (now infamous) fraudulent creation and use of the JEDI/Chewco SPEs. Id. This enabled Enron to improperly recognize $45 million of revenue and hide $700 million worth of debt. 11. These events took place before 98, despite defendants' suggestion that the CC only relates to fraudulent actions occurring after 10/98. Another example of fraud occurring in 97, detailed in the CC, is Enron International's improper repeated deferral of start-up and proposal costs even after bids failed. These deferrals included developer, financing and promotional fees, that were incurred on failed project proposals. 121(f), 614. These deferred expenses were accumulated for more than five years – between 93 and 97 – a practice known inside Enron as "snowballing." Id. Both the JEDI/Chewco transactions and the "snowballing" made Enron's 97 financial statements false. The accounting manipulations committed by defendants, including those detailed above, were included in Enron's 97 Form 10-K, rendering the Form 10-K false and misleading. Enron's 97 Form 10-K, which was filed in 3/98, was incorporated by reference into the Registration Statement which was used to sell the Notes. The Washington Board bought the Notes in 7/98. 613. Also, the 7/7/98 Prospectus incorporated Enron's 3rdQ 97 10-Q which improperly accounted for contracts in Enron's EES department. 613, 615. Thus, it is quite clear that plaintiffs plead improper conduct which induced their purchases. 3. Plaintiffs Adequately Plead Aider and Abettor Liability Under the Texas Securities Act a. Plaintiffs Have Adequately Alleged Defendants' Violations of the Texas Securities Act Texas law imposes joint and several liability for anyone who "directly or indirectly with intent to deceive or defraud or with reckless disregard for the truth or the law materially aids … [an] issuer of a security" in violation of the Texas Securities Act. Frank, 11 S.W.3d at 384. "In order to establish aiding and abetting liability plaintiffs must demonstrate 1) that a primary violation of the securities laws occurred; 2) that the alleged aider had 'general awareness' of its role in the violation; 3) that the actor rendered 'substantial assistance' in this violation; and 4) that the alleged aider either a) intended to deceive plaintiff or b) acted with reckless disregard for the truth of the representations - 101 -
made by the primary violator." Id.; Crescendo Invs., Inc. v. Brice, 61 S.W.3d 465, 472 (Tex. App. - San Antonio 2001, pet. denied). The CC satisfies each of these requirements. b. Enron Committed a Primary Violation of the Texas Securities Act An issuer of securities is strictly liable for untrue statements of material fact contained in a prospectus accompanying a public offering. Tex. Rev. Civ. Stat. Ann. art. 581-33C(2) (Vernon 2001). Enron's offering documents incorporated Enron's financial statements, including the representations concerning Enron's levels of debt and earnings, which were manipulated by, among other things, the defendants' use of SPEs and partnerships to engage in the transactions detailed in the CC, the abuse of mark-to-market accounting, the creation of hidden loans, etc. By restating these financial statements, Enron and the Enron defendants have now admitted that these offering documents were untrue statements of material fact. See APB Opinion 20, at 13; In re Telxon Corp. Secs. Litig., 133 F. Supp. 2d 1010, 1026 (N.D. Ohio 2000) ("Telxon, itself, admitted its prior disclosures were materially misstated when it issued the restatements which gave rise to this litigation."). Enron thus violated the Texas Securities Act. Tex. Rev. Civ. Stat. art. 581-33C(2). c. Each Defendant Had a General Awareness of Its Role in Enron's Violations and Rendered Substantial Assistance to Enron Each defendant had a general awareness of its role in Enron violating the Texas Securities Act. See Section on Rule 96 Particularity. Each defendant has performed actions in furtherance of the fraudulent scheme, as demonstrated herein. See Section on Rule 9(b) Particularity. These allegations are sufficient to show each defendant "was generally aware of its role in a securities violation by a primary party." Fine v. American Solar King Corp., 919 F.2d 290, 300 (5th Cir. 1990). Plaintiffs need not allege that each defendant was aware of its role in the underwriters' violations of the Texas Securities Act. This is not necessary because each defendant materially aided Enron's – the issuer's – violations of the Texas Securities Act. "A person who directly or indirectly with intent to deceive or defraud or with reckless disregard for the truth of the law materially aids - 102 -
Page 1 and 2:
UNITED STATES DISTRICT COURT SOUTHE
Page 3 and 4:
Page c. The Outside Directors Who S
Page 5 and 6:
Page 5. Defendants Claim They Can A
Page 7 and 8:
Page Chiarella v. United States, 44
Page 9 and 10:
Page In re AST Research Sec. Litig.
Page 11 and 12:
Page Krim v. BancTexas Group, 989 F
Page 13 and 14:
Page Santa Fe Indus., Inc. v. Green
Page 15 and 16:
Page LEGISLATIVE HISTORY H.R. Rep.
Page 17 and 18:
in various elements of Enron's sche
Page 19 and 20:
to generate 40% of the profits Enro
Page 21 and 22:
• No other company offered such i
Page 23 and 24:
of dollars to maintain its liquidit
Page 25 and 26:
In fact, in mid-8/01, an Enron exec
Page 27 and 28:
and course of business, that Enron'
Page 29 and 30:
Investigations Subcommittee of the
Page 31 and 32:
LJM's interest, Enron had agreed in
Page 33 and 34:
fraudulent course of business by ap
Page 35 and 36:
As stated above, the Board received
Page 37 and 38:
deceptive device, J.P. Morgan and E
Page 39 and 40:
e triggered, which would require En
Page 41 and 42:
I realize that we have had a lot of
Page 43 and 44:
Debt Amount of Understatement Share
Page 45 and 46:
100 90 80 Total Shares Sold By Defe
Page 47 and 48:
year and make any recommendations t
Page 49 and 50:
• Committee receives a document f
Page 51 and 52:
1996) (it is improper to isolate "t
Page 53 and 54:
defendants' alleged securities frau
Page 55 and 56:
The CC specifies precisely what sta
Page 57 and 58:
Date Statement Outside Director Sig
Page 59 and 60:
Robertson, 32 F. Supp. 2d. 443. The
Page 61 and 62:
facts that affect the validity or p
Page 63 and 64:
provides: deceptive device or contr
Page 65 and 66: Id. at 363-64. Accord Heller v. Am.
Page 67 and 68: The Court said: "[T]he text of the
Page 69 and 70: 3. The CC Alleges Facts Giving Rise
Page 71 and 72: These actions alone are enough to d
Page 73 and 74: would have resulted in a $0.4 milli
Page 75 and 76: approval of them was necessary, and
Page 77 and 78: These are distinct liability theori
Page 79 and 80: Thus, Enron's Board had continuous
Page 81 and 82: of a mere $13 million (an almost 10
Page 83 and 84: is an issue of fact that is inappro
Page 85 and 86: 100 times those in prior periods. 4
Page 87 and 88: a considerable number of shares aft
Page 89 and 90: (g) Norman Blake Although Blake onl
Page 91 and 92: This inquiry into contemporaneity p
Page 93 and 94: puts and calls); see also Dau v. Ce
Page 95 and 96: unequivocally hold Rule 9(b) does n
Page 97 and 98: offending registration statement. S
Page 99 and 100: arguments are nothing more than a c
Page 101 and 102: occurred via the LJM2 partnership's
Page 103 and 104: Enron provides premium broadband de
Page 105 and 106: actually hedging with itself, not r
Page 107 and 108: For example, the 00-01 Registration
Page 109 and 110: illion as of 7/01. And, contrary to
Page 111 and 112: also incorporated all documents fil
Page 113 and 114: possession, direct or indirect, of
Page 115: Anheuser-Busch Cos. v. Summit Coffe
Page 119 and 120: IV. Conclusion Accordingly, based o
show all

Plaintiffs' Memorandum of Law in Opposition to Motions to Dismiss ...

Create successful ePaper yourself

Delete template?

Save as template?