The 5th U.S. Circuit Court of Appeals ruled on Monday that former Enron shareholders could not bring a $40 billion class action lawsuit againt investment banks for their alleged role in accounting fraud which lead to the collapse of Enron. The decision over turned a lower court ruling which would have allowed plaintiffs to band together.

A three judge panel held “the district court, albeit with the best of intentions, misapplied the fraud-on-the-market presumption; the facts alleged do not constitute misrepresentations on which an efficient market may be presumed to apply.”

The court noted that “Enron had a duty to its shareholders, but the banks did not. The transactions in which the banks engaged in at most aided and abetted Enron’s deceit by making its misrepresentations more plausible.”

Plaintiffs may proceed in lawsuits against investments banks, but they can only do so individually.

The case is Regents of the University of California vs. Credit Suisse First Boston (USA), Inc., et al. Decided March 19, 2007. 

Source: http://www.ca5.uscourts.gov/opinions/pub/06/06-20856-CV0.wpd.pdf