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

[R]ead in the light most favorable to plaintiffs, the SAC alleges that BoA
knowingly used the outdated . . . valuation to place an inflated price on the PA
private placement. This caused the two SPEs to overpay for their investment in
PA, a fact that was irrelevant to BoA because BoA knew that PA would not
become publicly listed and that the two SPEs therefore would be able to put their
entire investment back to Parmalat at a profit [via the put agreement]. The
combination of the overvaluation and the put agreement, then, created the
appearance that BoA believed that PA was worth the full $1.6 billion and was
willing to invest its own money based on that valuation, when in fact BoA knew
that PA was worth far less and was willing to invest only because the put
guaranteed that BoA would be repaid at a premium. Accordingly, plaintiffs’
allegations regarding the PA transaction state a claim under Rule 10b-5 (a) and
(c).
Parmalat III, 414 F. Supp. 2d at 435.
Also in the 7/20/06 Order, this Court examined the Ninth Circuit’s decision in the appeal
of Homestore.com, 252 F. Supp. 2d 1018. See Enron, 439 F. Supp. 2d at 719 n.33 (discussing
Homestore, 452 F.3d 1040). In Homestore, the Ninth Circuit affirmed the existence of scheme
liability under Rule 10b-5(a) and (c), favorably citing this Court’s original 12(b)(6) order
regarding Barclays and other banks and subsequent Merrill Lynch opinion as correctly decided.
452 F.3d at 1050. The court, agreeing with the SEC in large part, ruled that “[i]f a defendant’s
conduct or role in an illegitimate transaction has the principal purpose and effect of creating a
false appearance of fact in the furtherance of a scheme to defraud, then the defendant is using or
employing a deceptive device within the meaning of §10(b).” Id.
Lead Plaintiff is the party who submitted the SEC Brief to the Court. See Enron, 2006
U.S. Dist. LEXIS 43146, at *161-*164. And Lead Plaintiff continues to believe that the SEC
Brief presents the proper standard for scheme liability in this case, and that the evidence
concerning CSFB’s role in the Enron fraud is clearly sufficient for the imposition of scheme
liability under the SEC’s test.
Yet Lead Plaintiff can also easily demonstrate that CSFB’s conduct renders it liable as a
primary violator of Rule 10b-5(a) and (c) under Parmalat I, and thus under this Court’s 7/20/06
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