For a second time, the U.S. District Court for the Southern District of New York told J.P. Morgan Chase &Co. shareholders that they cannot hold the investment bank responsible for securities fraud related to its alleged complicity in helping Enron cover up its true financial situation.
Judge Sidney H. Stein said the second amended complaint had the same flaws as the first complaint: The Enron shareholders, not the investment bank’s shareholders are the victims of Enron’s collapse and therefore the ones defrauded-if the allegations were borne out.
According to the plaintiffs, they became investors in JPM Chase because it was known for its financial discipline and integrity. The bank, however, was unlawfully helping and abetting Enron’s wrongful conduct. Its reputation suffered after its role in the Enron scandal was revealed.
The plaintiffs claim that JPM Chase defrauded its investors from November 1999 to July 2002 by concealing its role in the Enron fraud debacle. Enron was one of JPM Chase’s most lucrative clients. The investment bank also hid the fact that it created Mahonia Natural Gas Limited and Mahonia Limited, two shell companies that the bank used to give Enron billions of dollars in credit masked as revenue from prepaid commodities.
These transactions allegedly allowed Enron to cover up its debt so it wouldn’t have to appear on its balance sheet. JPM Chase allegedly was paid “exorbitant advisory fees” by Enron in exchange for its help. It also allegedly invested millions of dollars in one of Enron’s money-spinning partnerships that it used to “consummate various sham transactions” that was used to cover up the ownership risks of Enron’s assets.
The court said that both complaints were dismissed because they did not satisfy fraud pleading requirements. For example, while the second complaint showed new ways that JPM Chase issued misleading misrepresentations, the plaintiffs still did not show how these misrepresentations were just “non-actionable puffery.”
Also, the court said the amended complaint included charges connected to the bank’s less than complete due diligence when underwriting notes offerings by WorldCom Inc. and its helping and abetting of Enron’s misconduct. The court said that these were not relevant to the current action because they concerned WorldCom and Enron shareholders, not JPM Chase’s shareholders. It also noted that the investment bank’s failure to reveal the true nature of the Mahonia partnerships was not material and that JPM Chase’s deals with Enron had generated just $86 million over five years-just a fraction of the investment bank’s overall revenues during that time.
If you are investor that has incurred a financial lose because of the wrongful actions of an investment bank or another member of the securities industry, please call Shepherd Smith and Edwards today for your free consultation. We have a successful track record for helping investors recover their losses.
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