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The Supreme Court dealt a blow Tuesday to Enron investors who sued major investment banks to recover money lost when the Texas energy giant collapsed amid a massive accounting fraud. By refusing to review the investors' lawsuit, the court took away what may have been their only hope of keeping the case alive. Enron stockholders may seek to revive their case in the lower federal courts, though the 5th U.S. Circuit Court of Appeals in New Orleans has ruled against them once before.

Enron's demise wiped out thousands of jobs, more than $60 billion in market value and more than $2 billion in pension plans.

Tuesday's turndown for the Enron investors came without comment in a routine Supreme Court list of cases the justices had decided not to hear.

The chances that Enron shareholders can recover some money dimmed a week ago with the Supreme Court's decision against investors in a separate suit. It alleged that two suppliers doing business with a cable TV company engaged in securities fraud.

That suit was politically sensitive for the Bush administration because of its potential to affect the Enron case. The administration sided with the business community against investors, despite the recommendation of the Securities and Exchange Commission to side with the investors. It was left to attorneys general from 30 states to support shareholders in the case against the cable TV suppliers.

The justices ruled that the investors in Charter Communications Inc. did not have the right to sue because they did not rely on the deceptive acts of the suppliers.

The same principle could apply to the Enron case, where investors relied on Enron's glowing description of its business, but were arguably unaware of any deceptive conduct by the investment banks.

Lawyers for Enron investors say the circumstances in the two cases are not comparable.

In the Enron suit, stockholders are accusing Wall Street investment banks of colluding with the energy company to hide its losses.

To date, Enron plaintiffs have settled for $7.3 billion from several financial institutions including JPMorgan Chase & Co., Citigroup and Canadian Imperial Bank of Commerce.

Enron stockholders are seeking more than $30 billion from Merrill Lynch & Co., Credit Suisse First Boston and Barclays Bank PLC.

The investment banks, say Enron investors, schemed with the energy company, scheming with Enron by entering into partnerships and transactions that enabled the energy company to take liabilities off its books, recording revenue from the deals when it was actually incurring debt.

Now that the Supreme Court has rejected the case, "I think that the chances of succeeding on a scheme liability theory are nearly zero; the resolution of this Enron case was made clear by the decision" last week against investors in the cable TV suppliers suit, said attorney Greg Markel, who represents corporate clients in securities fraud lawsuits.

Last March, the appeals court in New Orleans reversed a decision by U.S. District Judge Melinda Harmon in Houston, who had said Enron shareholders could sue as a class.

The issue of certifying a class is a critical one. Once the courts allow huge numbers of investors to pursue a securities fraud lawsuit, the defendants almost always settle rather than exposing their corporations to potentially catastrophic liability.

The appeals court decision in the Enron case meant that shareholders and investors could not pool their resources to sue as a group. Lawyers for Enron investors estimate the class size at over 1 million shareholders.

Enron Corp., once the nation's seventh-largest company, crumbled into bankruptcy in December 2001. The failure became a symbol of the corporate scandals that rocked Wall Street early this decade.


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