Barclays named in Enron shareholder action
David Teather in New York Saturday April 6, 2002 The Guardian
Barclays Bank will be among the firms named in a huge class action lawsuit to be filed on Monday representing disgruntled shareholders in Enron, the bankrupt energy firm.
The suit draws together various claims from investors who lost billions of dollars in the Enron debacle. The plaintiffs are significantly widening their targets for compensation to include a handful of investment banks which worked with the Houston business.
It is rare for institutional investors to turn on Wall Street. Part of the reason for widening the net is the recognition that Arthur Andersen, the auditor which approved Enron's questionable accounting, may have nothing left in the kitty.
Andersen is rapidly disintegrating and in the US it is preparing to lay off as many as 7,000 staff. The firm reached agreement late on Thursday to sell its tax business to rival Deloitte & Touche.
The class action lawsuit is being led by the pension fund of the University of California, which lost $145m as Enron fell into bankruptcy. Enron collapsed after it emerged that the company had kept huge debts off its books in a series of controversial offshore ventures.
Wall Street's role in the downfall of the company has come under increasing scrutiny and prompted moves to overhaul the rules governing banks.
Barclays provided loans of $251m (£175m) to special purpose vehicles at the centre of the Enron scandal.
The financing was provided by Barclays' investment banking division, Barclays de Zoete Wedd, in 1997 and was used by Chewco - one of a series of partnerships named after Star Wars characters - to acquire assets from Enron.
BZW was highlighted in February by US academic William Powers in his internally commissioned report into the collapse of Enron. He said BZW had "played a central role" in Enron's decision to restate its accounts last year. The loan, he added, was "fatal" to compliance with US financial rules. Barclays has maintained that the loans were straightforward and argued that it has done nothing wrong.
BZW has since been broken up, after Barclays took the decision to retreat from the investment banking market. The equities side was sold to Credit Suisse First Boston, which is also expected to be named in the amended filing on Monday. The fixed income side was absorbed back into Barclays Capital.
According to US reports two investment bankers at CSFB who helped design some of the financing vehicles used by Enron also served as directors at one of the offshore companies.
Others expected to be caught up in the lawsuit include banks Merrill Lynch, Deustche Bank, JP Morgan Chase and Citigroup, and consultant McKinsey & Co.
Parker Blackman, a spokesman for the law firm Milberg Weiss Bershad Hynes & Lerach which is filing the lawsuit, declined to comment on specific defendants. "All I can say is that new defendants will be named," he said.
The sale of the Andersen tax business could be completed by the end of the month, the firm said. The deal is expected to involve the transfer of some 400 partners and staff in western states of the US. The sale allows partners to take their clients with them.
Andersen is moving to divest businesses unrelated to its audit practice as part of the shake up proposed by Paul Volcker, the former Federal Reserve chairman who leads an oversight board. Andersen is due in court at the beginning of next month to answer charges of obstruction of justice for shredding documents related to Enron.
The firm is in negotiations with the US Justice Department in an effort to reach some kind of settlement ahead of the trial. If Andersen were found guilty it would spell the certain end of the firm in the US as it would be barred from carrying out audits. Any settlement appears to hinge upon Andersen admitting its guilt.