## Facts

- Purchasers of Enron publicly traded equity and debt securities brought a consolidated putative class action after Enron’s collapse.
- The actions were centralized in an MDL in the Southern District of Texas.
- Plaintiffs alleged Enron and “secondary actors” (major banks/financial institutions, outside law firms, and auditor Arthur Andersen LLP and certain partners) participated in an integrated fraud that inflated reported revenues, concealed debt, and maintained an artificially high stock price and credit ratings.
- The alleged fraud relied on complex off-balance-sheet partnerships and special purpose entities, and on structured transactions allegedly lacking legitimate economic purpose beyond accounting and disclosure effects.
- Plaintiffs alleged the secondary actors profited through large fees, business opportunities, and investment benefits while enabling or executing deceptive transactions and approving misleading accounting and disclosures.
- Defendants moved to dismiss under Rule 12(b)(6), challenging whether claims were pleaded with particularity under Rule 9(b) and the PSLRA.

## Issues

1. Whether the complaint pleaded primary liability under Exchange Act § 10(b) and Rule 10b-5 against banks, law firms, and the auditor, rather than impermissible private aiding-and-abetting theories.
2. Whether plaintiffs pleaded facts supporting a strong inference of scienter (intent or severe recklessness) for each secondary actor under the PSLRA.
3. Whether alleged participation in structured-finance transactions and other acts could constitute a deceptive “scheme” or “course of business” under Rule 10b-5(a) and (c).
4. Whether reliance was adequately alleged where many secondary-actor acts were not directly communicated to investors.
5. Whether related control-person and state-law fraud/securities claims were sufficiently pleaded as to the secondary actors.

## Decision

- The court largely denied the secondary actors’ motions to dismiss, allowing core § 10(b)/Rule 10b-5 claims to proceed against Arthur Andersen and several key financial-institution defendants.
- As to Arthur Andersen, the court held plaintiffs sufficiently alleged GAAP/GAAS violations and pleaded facts supporting a strong inference of scienter.
- The court held that allegations of repeated, purposeful transactions and relationships with Enron, coupled with profit motives and internal circumstances, plausibly supported knowing participation in deceptive conduct.
- The court rejected arguments that the complaint alleged only routine professional services or mere negligence where plaintiffs pleaded transaction structures and conduct allegedly designed to mislead the market.
- The court granted dismissal in part as to certain defendants or theories, narrowing some claims while permitting others to proceed.

## Legal Principles

- Private plaintiffs cannot recover under § 10(b) for aiding and abetting; they must plead conduct amounting to a primary violation.
- Rule 10b-5(a) and (c) can support primary liability where a defendant is alleged to have engaged in deceptive acts or a course of business operating as a fraud, even if the defendant is not the issuer.
- Scienter may be pleaded through particularized circumstantial allegations; a pattern of repeated conduct and the magnitude of alleged misconduct can support a strong inference of intent or severe recklessness.
- Alleged GAAP/GAAS violations, combined with pleaded “red flags” and the materiality and complexity of the transactions at issue, can support an inference of scienter at the pleading stage.
- At the motion-to-dismiss stage, lack of direct communications between secondary actors and investors is not necessarily fatal where plaintiffs plausibly allege the actors’ deceptive conduct was integral to misleading public disclosures or the market price.

## Conclusion

The court held that the consolidated complaint, as pleaded, stated primary securities-fraud claims against key non-issuer banks and the auditor by alleging detailed deceptive scheme conduct and facts supporting a strong inference of scienter, while trimming certain defendants or theories that were insufficiently pleaded.


In re Enron Corp. Sec., Derivative & ERISA Litig., 235 F. Supp. 2d 549 (S.D. Tex. 2002)