Lead Plaintiff's Opposition to CSFB MSJ 11/13/06 - The ENRON Fraud

These pronouncements must be read in conjunction with the Supreme Court’s
longstanding and consistent recognition that liability under Rule 10b-5 is not limited to the
making of a false statement or omission. Because Rule 10b-5(a) and (c) render it actionable to
“‘employ any device, scheme, or artifice to defraud’” and/or to “‘engage in any act, practice, or
course of business which operates or would operate as a fraud or deceit upon any person,’”
liability may be found under these subsections notwithstanding the absence of an actionable
misstatement or omission. 23
Enron, 2006 U.S. Dist. LEXIS 43146, at *157. Claims for
nonrepresentational conduct 24 under subsections (a) and (c) of the Rule are commonly referred to
as those for “scheme liability.” See Enron, 2006 U.S. Dist. LEXIS 43146, at *155-*174.
In determining precisely what conduct warrants the imposition of scheme liability, it
should be noted that “the Supreme Court has emphasized repeatedly that Section 10(b) ‘should
23
See, e.g., Affiliated Ute Citizens v. United States, 406 U.S. 128, 152-53 (1972) (“To be
sure, the second subparagraph of the rule specifies the making of an untrue statement of a
material fact and the omission to state a material fact. The first and third subparagraphs are not
so restricted.”). This Court has rightly and repeatedly acknowledge that liability exists under
Rule 10b-5(a) and (c) for conduct not amounting to misstatements or omissions. See, e.g., In re
Enron Corp. Sec. Litig., 236 F.R.D. 313 (S.D. Tex. 2006) (“deceptive acts under Section 10(b)
include conduct beyond the making of false statements or misleading omissions, for facts
effectively can be misrepresented by action as well as words”) (quoting SEC Brief (Ex. 3) at 8).
24
As the SEC has noted and courts have routinely held, both Section 10(b) and Rule 10b-5
cover (among other things) deceptive conduct, acts, and practices beyond mere false statements
or market manipulation:
It has long been accepted that Section 10(b), and Rule 10b-5(a) and (c)
thereunder, cover conduct beyond the making of false statements and misleading
omissions, which are covered by Rule 10b-5(b). The Supreme Court has stated
that Section 10(b) encompasses deceptive “practices,” Santa Fe Indus., Inc. v.
Green, 430 U.S. 462, 475-76 (1977), deceptive “conduct,” id. at 475 n.15;
O’Hagan, 521 U.S. 659, and deceptive “acts,” Central Bank, 511 U.S. at 173; see
Bankers Life, 404 U.S. at 9.
SEC Brief (Ex. 3) at 13-14.
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