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

This Court has repeatedly upheld Lead Plaintiff’s allegations of scheme liability in this
case. See, e.g., In re Enron Corp. Sec. Derivative & ERISA Litig., 235 F. Supp. 2d 549, 698-701
(S.D. Tex. 2002) (upholding allegations that CSFB committed a primary violation of Rule 10b-
5(a) and (c)). Yet this Court recently observed that, in the wake of Central Bank, concerning
scheme liability “the relevant law has evolved and been modified and clarified, often in different
ways by different courts, and the Court has attempted to address the problem.” In re Enron
Corp. Sec. Litig., 439 F. Supp. 2d 692, 713 (S.D. Tex. 2006) (or “7/20/06 Order”).
In its Opinion and Order Re Class Certification of June 5, 2006 (“6/5/06 Order”), this
Court examined the SEC’s position on the issue as stated in the SEC Brief, and ruled that the
Court “adopts its approach.” Enron, 2006 U.S. Dist. LEXIS 43146, at *174. The SEC’s position
is that:
Any person who directly or indirectly engages in a manipulative or deceptive act
as part of a scheme to defraud can be a primary violator of Section 10(b) and Rule
10b-5(a); any person who provides assistance to other participants in a scheme but
does not himself engage in a manipulative or deceptive act can only be an aider
and abettor.
SEC Brief (Ex. 3) at 16. Under this test, liability follows for “engaging in a transaction whose
principal purpose and effect is to create a false appearance of revenues.” Id. at 18. The SEC
offered several examples of conduct that would be actionable, and alternatively non-actionable,
under its test (see id. at 20-21), which this Court noted (see Enron, 2006 U.S. Dist. LEXIS
43146, at *166-*169). 27
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In adopting the SEC’s approach, this Court declined to follow the holding of In re
Charter Commc’ns, Inc., 443 F.3d 987 (8th Cir. 2006), which held that a seller of goods to a
public company in a legitimate arm’s-length business transaction cannot be held liable for
participating in a scheme to falsify that company’s financial statements where that seller had not
engaged in any contrivance or committed any deceptive or manipulative act. This Court noted
that the SEC’s position stands in “contrast” to the Charter court’s “narrow reading of the term”
“manipulative or deceptive act.” Enron, 2006 U.S. Dist. LEXIS 43146, at *166-*168. CSFB,
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