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

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I. Introduction In the wake of the most brazen, massive corporate fraud in history – a fraud that cost thousands of investors their pension plans and hard-earned life savings – this securities class action was brought on behalf of purchasers of Enron's publicly traded equity and debt securities between 10/19/98 and 11/27/01 (the "Class Period"). Defendants are Enron's top executives and directors as well as Enron's auditor and its affiliated entities and partners (collectively, "Andersen"), the law firms of Vinson & Elkins and Kirkland & Ellis, and Enron's banks. The motions to dismiss filed by the following Enron Defendants are addressed in this memorandum: Belfer, Blake, Chan, Duncan, Foy, Gramm, Jaedicke, LeMaistre, Mendelsohn, Meyer, Pereira, Savage, Urquhart, Wakeham, Walker, Winokur (the "Outside Directors"). 1 Defendants Mendelsohn, Meyer, Pereira, Savage, Urquhart, Wakeham, Walker and Winokur are sued only under claims for violations of §§11 and 15 of the Securities Act, for which the Consolidated Complaint ("CC") expressly excluded and disclaimed allegations that could be construed as alleging fraud. 1005. 2 Thus, descriptions herein of the Outside Directors' involvement in Enron's scheme to defraud do not apply to Mendelsohn, Meyer, Pereira, Savage, Urquhart, Wakeham, Walker and Winokur. Despite a detailed and specific CC describing the enormity of the fraud, Enron's outside directors – whose approval of fraudulent transactions, conflicts of interest and deceptive accounting were at the center of the fraud – now move to dismiss the CC. The CC sets out in great particularity the participation of each of the Outside Directors in the Enron scheme. The CC alleges with particularity, the who, what, when, where, and why of each statement, signed by each Outside Director. Further, the CC avers specific facts that describe manipulative and deceptive devices these board members used to defraud Enron's investors, as well as their knowing and reckless participation 1 This brief responds to the following briefs filed by the Outside Directors: Motion to Dismiss of Defendants Robert A. Belfer, Norman P. Blake, Jr., Ronnie C. Chan, John H. Duncan, Joe H. Foy, Wendy L. Gramm, Robert Jaedicke, Charles A. LeMaistre, John Mendelsohn, Jerome Meyer, Paulo Ferraz Pereira, Frank Savage, John Wakeham, Charls E. Walker, and Herbert S. Winokur ("Outside Dir. Br."), filed jointly, and responds as well to the separately filed brief of John A. Urquhart. 2 All "__" references are to plaintiffs' CC filed 4/8/02. - 1 -
in various elements of Enron's scheme to defraud. Each of the individual Outside Director defendants served on Enron's board of directors (the "Board") and one or more of the Executive, Finance or Audit Committees. The CC describes specific fraudulent transactions and states that the outside directors, as Board and committee members, knew about them and approved them. The Outside Director's brief reads as if these directors had nothing to do with Enron, and it was some other group of directors who approved Enron's fraudulent transactions, conflicts of interest, and accounting manipulations. The CC contains a barrage of factual allegations that pertain to each Outside Director. The CC goes far beyond alleging what the Outside Directors "must have known." The CC and other materials properly considered in this motion to dismiss describe dozens of fraudulent transactions the details of which were presented to the Board and approved by the Board and its committees. In fact the Outside Directors were deeply involved in reviewing and approving the very transactions that are central to the CC, and that were key to Enron's financial fraud. These were not insignificant, remote or even isolated, or discreet transactions, but major elements of Enron's business that were accomplished with the full knowledge of their risks and impropriety by the Board. This chart, prepared by Congress, vividly shows what the Outside Directors knew and ignored in making their false and misleading statements. - 2 -
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: Page LEGISLATIVE HISTORY H.R. Rep.
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.
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The Court said: "[T]he text of the
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3. The CC Alleges Facts Giving Rise
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These actions alone are enough to d
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would have resulted in a $0.4 milli
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approval of them was necessary, and
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These are distinct liability theori
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Thus, Enron's Board had continuous
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of a mere $13 million (an almost 10
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is an issue of fact that is inappro
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100 times those in prior periods. 4
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a considerable number of shares aft
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(g) Norman Blake Although Blake onl
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This inquiry into contemporaneity p
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puts and calls); see also Dau v. Ce
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unequivocally hold Rule 9(b) does n
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offending registration statement. S
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arguments are nothing more than a c
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occurred via the LJM2 partnership's
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Enron provides premium broadband de
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actually hedging with itself, not r
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For example, the 00-01 Registration
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illion as of 7/01. And, contrary to
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also incorporated all documents fil
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possession, direct or indirect, of
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Anheuser-Busch Cos. v. Summit Coffe
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made by the primary violator." Id.;
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IV. Conclusion Accordingly, based o
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Plaintiffs' Memorandum of Law in Opposition to Motions to Dismiss ...

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