Judge Dismisses Banks From Enron Lawsuit

Citigroup Inc., J.P. Morgan Chase & Co. and other banks sued by Enron Corp. employee pension funds for allegedly helping the energy trader misstate its finances were dismissed Wednesday from the $3-billion lawsuit.

U.S. District Judge Melinda Harmon in Houston granted a motion to dismiss racketeering claims the funds filed against the two largest U.S. investment banks and other defendants.

The banks must still defend similar fraud charges made by shareholders and bondholders in a companion $30-billion suit filed with Harmon. The judge ruled that the banks could not be sued for conspiracy under U.S. racketeering laws while investors were suing them for fraud under federal securities statutes, which have a preemptive status.

“The judge was not saying there was no conspiracy by the banks,” said Lynn Sarko, a lawyer who represents the funds.

The judge refused to dismiss claims that Enron, Northern Trust Corp. and former Chief Executive Kenneth L. Lay had violated federal pension laws in the way they administered the employee funds.

The funds owned company stock that became almost worthless after Enron admitted in late 2001 that it had disguised bank loans as energy trades in off-the-books partnerships. Employees were barred from selling their pension-fund stock as Enron collapsed and filed for bankruptcy protection.

“Judge Harmon’s decision is good news for employees and retirees at other companies that have seen their retirement funds devastated by fraud and mismanagement,” Sarko said. “This opinion puts executives and trustees on notice that they are responsible for these types of retirement fund losses.”