News Summary
SAN FRANCISCO - California's public employee pension fund has become the latest plaintiff seeking to hold Wall Street accountable for losses sustained in the past year's wave of financial collapses.
In a suit filed Thursday in San Francisco Superior Court, the California Public Employees' Retirement System claims some of the country's largest investment banks violated state laws by touting Enron bonds even as they knew the company was on the brink of disaster.
The banks "provided the financial grease which let Enron grow into the seventh-largest company in the United States," according to the lawsuit. The suit is one in a recent string of actions seeking to hold ancillary financial companies liable for recent corporate bankruptcies.
The 63-page complaint provides detailed allegations concerning so-called "special purpose entities," or companies created by Enron to hide its debt and inflate its earnings. Enron created more than 3,400 such entities, according to the suit, often with help and money from the banks. The complaint quotes text from internal documents and e-mail messages that seem to show the banks knew Enron was manipulating its financial statements.
The lawsuit is the latest in a series of cases in which victims of corporate collapse seek to hold investment banks responsible.
Because the companies themselves are essentially judgment-proof, investors must find new defendants if they want to recover their losses. Over the past year, banks have become popular targets for such suits, said Paul Murphy, who is involved in a similar lawsuit against Global Crossing.
"So many people were in these stocks, there's a big incentive to find someone to pay the bill," he said. "The problem [plaintiffs lawyers] have is that the defendant is bankrupt, so they are looking further and further away."
The Enron lawsuit is California Public Employees' Retirement System v. Banc of America Securities, 414500.
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