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

architects’ of the scheme who ‘designed and carried [it] out.’ The ‘use or employ’ language of
Section 10(b), however, suggests no such requirement.”). Thus, even if Enron and/or Fastow,
Skilling or Lay were the originator or mastermind, CSFB’s own deceptive conduct subjects it to
primary liability.
Nor do the securities laws require that a third party whose conduct comes within the
proscriptions of the statute have a special relationship with the subject corporation in order to be
deemed a primary violator under §10(b). In Homestore, the Ninth Circuit rejected the district
court’s prohibition against scheme liability beyond corporate officers and those with a special
relationship with the corporation. 452 F.3d at 1053. The SEC agrees: “[T]o require a special
relationship with the corporation . . . would allow a person who is not in such a relationship to
accomplish the same fraud, with the same state of mind, and the same effect on investors as a
person in such a relationship, and nonetheless escape liability.” SEC Brief (Ex. 3) at 7.
In addition, a defendant like CSFB is not immunized from liability in a scheme to defraud
by claiming simply that the deception did not occur until the issuer of the financial statements
fraudulently accounted for the transactions. In Parmalat I, Judge Kaplan held:
The defendants’ argument that they were at most aiders and abettors of a
program pursuant to which Parmalat made misrepresentations on its financial
statements misses the mark. The transactions in which the defendants engaged
were by nature deceptive. They depended on a fiction, namely that the invoices
had value. It is impossible to separate the deceptive nature of the transactions
from the deception actually practiced upon Parmalat’s investors. Neither the
statute nor the rule requires such a distinction.
376 F. Supp. 2d at 504. Similarly, as this Court earlier noted:
Although Merrill Lynch argues its actions were not unlawful and that they were
merely business transactions later misrepresented by Enron in its financial
statements, the factual allegations suggest knowingly deceptive conduct . . . .
Sham business transactions with no legitimate business purpose that are actually
guaranteed “loans” employed to inflate Enron’s financial image are not aboveboard
business practices. This Court disagrees with Merrill Lynch’s contention
that the alleged “‘deception’ did not occur until Enron allegedly misreported” the
transactions.
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