Thursday, April 06, 2006

Enron Judge Tackles Dura

Even the Enron Judge is getting into the Dura shuffle. And despite what the Nugget said earlier, this opinion could be the most comprehensive analysis of Dura yet. Judge Melinda Harmon (S.D. Tex.) says that “although Plaintiff's proposed class purchased Enron securities at a highly inflated price because of Enron's alleged fraudulent financial statements, both complaints make clear that key corrective disclosures in the latter part of 2001 exposing material misstatements and omissions in earlier years of Enron's financial reports caused the sharp drop in price and the investors' damage."

So, “the relatively small time gap between the five transactions at issue and Jeff Skilling's August 2001 resignation, Enron's October 2001 corrective disclosures to the world, followed by SEC's investigation, is short, just over a year, thus tightening the causation link. The price of the stock plunged following Enron's revelation and its swift descent into bankruptcy. The putative class's economic loss was not the disparity in the inflated purchase price and the actual quality of the investment, but the significant decline in the price of the securities with the startling revelation in the fall of 2001 of Enron's previously concealed debt obligations, financial exposure, and vulnerability to bankruptcy, which it allegedly had deliberately hidden from investors.”

You, and especially those confused people who think Dura somehow affects the fraud-on-the-market rule (yes, you are confusing transaction causation -- factor 4 in Dura -- with loss causation -- factor 6, which the Supremes actually address), should check out the opinion, which denies RBC’s motion to dismiss.

You can read In re Enron, issued December 22, 2005, at 2005 U.S. Dist. LEXIS 41240.

Nugget: “Plaintiff's suit was filed on January 9, 2004, more than fifteen months before the Supreme Court issued its ruling in Dura Pharmaceuticals on April 19, 2005. Dismissal based on a complaint's failure to comply with a Supreme Court's subsequent ruling, without allowing the plaintiff an opportunity to cure pleading deficiencies if it can, would be unjust.”

No comments: