Enron banks under fire in class-action lawsuit

Nine investment banks financed lucrative schemes that helped Enron, the failed US energy giant, appear to be a profit powerhouse up to its collapse, said lawyers who plan to add the banks to a shareholder lawsuit today.

William Lerach, who is leading the class-action case in Houston, Texas, said the banks’ knowledge of Enron’s questionable partnerships and financial vehicles gave them an inside view of the company’s workings.

‘‘Every bank bears significant complicity for their involvement,’’ Lerach said.

The banks named in the suit are JP Morgan Chase & Co; Barclays Bank PLC; Citigroup Inc; Credit Suisse First Boston USA Inc; Canadian Imperial Bank of Commerce (CIBC); Bank of America Corp; Merrill Lynch & Co; Deutsche Bank AG and Lehman Brothers Holding Inc.

The structures, backed by Enron stock and in part developed and funded by the banks, allegedly hid debt and inflated profits. Their ability to go unnoticed depended on a high stock price, since drops in shares triggered debt payments that would require Enron to issue more shares and reduce shareholder equity.

The €28bn lawsuit was originally filed in December on behalf of large investors, the lead plaintiff being the University of California, which lost millions of dollars when Enron collapsed.

Original defendants included current and former Enron officials who sold more than €1.1bn in stock from October 1998 until November last year and Arthur Andersen LLP, Enron’s former auditor.

Lerach said subsequent investigation pointed to liability on the part of banks that were Enron’s lenders and underwriters before alleged accounting abuses exposed last year fuelled the company’s implosion.