Securities Regulation: Fraud; Aiding and Abetting Liability

摘要

In this part of the MDL action against various defendants relating to the Enron bankruptcy, various plaintiffs assert that Merrill Lynch is liable for aiding and abetting Enron's fraud under the Texas Securities Act (Tex.Rev.Civ.Stat. art. 581-33(F)(2)). Plaintiffs assert that Merrill knew, or should have known, that the sole purpose of the "Barge Transaction" was to enable Enron to falsify its reported financial condition. Several Merrill brokers had been convicted of criminal activities relating to this transaction. Merrill has also admitted responsibility for its employees' violations of the Securities Act. In order to establish aiding and abetting liability under the TSA, plaintiffs must first establish that there was a primary violation of the TSA by Enron. Merrill argues that Enron was not a "seller" under the TSA since it was entities like Merrill that actually sold the securities to the public at large. Only where there is a primary violation by the issuer or dealer which sold the issuer's commercial paper as issuer's alleged agent do you have a TSA violation. In this case, plaintiff was unable to plead that there was an agency relationship between the issuer and the dealer which absolves Merrill of liability under the TSA. Thus, the court grants partial summary judgment in favor of Merrill.