United States: Enron: It´s Time to Smoke-Out the Den of Thieves & Bring Them to Justice

New legal rules and regulations will not prevent another Enron-like fiasco. A corporation's directors and officers, outside legal counsel, outside auditors/consultants, and investment bankers/stock analysts will feel morally, if not legally, obligated to be truthful to shareholders only if it is too expensive for them to do otherwise. Enron's creditors should expeditiously use the current laws governing Corporate America to teach Enron's arrogant den of thieves that it is cost-effective to be truthful.

The U.S. Bankruptcy Code may allow Enron's creditors to bring assets back into the estate for distribution. A debtor-in-possession has the power to recover preferences and to void fraudulent conveyances. A preference is a payment or transfer of property to favored creditors within 90 days before the bankruptcy filing. The purpose of the power to recover preferences is to treat similarly situated creditors equally by not favoring any one creditor by preferential payments. For purposes of the Enron case, it should be noted that the applicable period of time in which an insider creditor is liable is one year - not 90 days. An insider creditor is a director, officer, person in control of the debtor, or partnership in which the debtor is a general partner. Since Enron executives have admitted that partnerships were created for the purpose of hiding Enron's debt, creditors may be able to recover these assets under the fraudulent conveyance clause. In cases of fraudulent conveyance, the debtor-in-possession may void any transfer of an interest of the debtor in property, or any obligation incurred by the debtor, that was made or incurred within one year before the filing for bankruptcy if the debtor: 1. made the transfer or incurred the obligation with +ACI-actual intent to hinder, delay or defraud+ACI- then existing or future creditors+ADs- or 2. received less than a +ACI-reasonably equivalent value+ACI- in exchange for such transfer or obligation. Creditors may be able to recover assets, if any, transferred from Enron to its partnerships in off-balance sheet transactions, stock market proceeds obtained by Enron's directors, officers, and other insiders, and preferential payments made to insiders, outside auditors/consultants, legal counsel, and investment bankers.

Similarly, plaintiffs may pursue remedies under the Securities Exchange Act of 1934 and the Securities Act of 1933. Enron's directors and officers appear to have engaged in massive insider trading while issuing materially false and misleading statements regarding the financial condition of the company. If the facts support the allegations that Enron's directors and officers engaged in acts and omissions which operated as a fraud and deceit upon the purchasers of Enron's publicly traded securities, the plaintiffs should be able to recover for the damages they suffered in connection with their purchases of Enron's stock.

However, plaintiffs' best opportunity to recover damages from Enron and friends may be the Racketeer Influenced and Corrupt Organizations (+ACI-RICO+ACI-) statute. Section 1962(c) of the Rico statute makes it a crime +ACI-to conduct or participate in the conduct of the affairs of an enterprise through a pattern of racketeering activity.+ACI- One must participate in the operation or management of the enterprise itself in order to be liable under RICO. In order to be successful under RICO, plaintiffs should consider filing the suit against Enron's directors and officers, outside legal counsel, outside auditors/consultants, and investment bankers/stock analysts as an +ACI-association-in-fact+ACI- enterprise. An association-in-fact is defined as a group of people joined together for the same purpose. Under RICO, an injured party +ACI-shall recover threefold the damages he sustains and the cost of the suit, including a reasonable attorney's fee.+ACI-

In conclusion, parties injured by the Enron fiasco should immediately seek restitution provided for in the U.S. Bankruptcy Code, the U.S. securities laws, and the RICO statute. Although the process will be time consuming, Enron's wrongdoers must be held accountable for their actions. Shareholder confidence in our capital markets must be restored. It's time to smoke-out Enron's arrogant den of thieves and bring them to justice.