Enron: Extortion, Interrupted

If you are an investor and own stocks you will receive a number of letters each year announcing that you are part of a class action suit. If you read the documents you will find them to be depressingly similar. They will tell you that the XYZ Company has agreed to settle a suit for millions and millions of dollars. It will include a lengthy but vague description of the possible refund you can expect to get. In order to get the refund you are asked to provide proof of having owned a certain security on a certain date, often years in the past. And you will find that the lawyers who have brought the lawsuit will get millions, tens of millions and often hundreds of millions of dollars.

My clients will send me these documents asking my advice on what to do, for any records of their proof of claim, and often “what is this all about?” What it’s all about is making some law firm partners filthy rich. It’s a high stakes game of extortion and a big money protection racket by the plaintiffs bar. The hapless investors get a chance to go through ancient records hoping to find proof so that they can send away and, years later possibly receive a check that will allow them to buy a Big Mac, hold the fries. The lawyers buy an exclusive compound in the Hamptons and a professional sports team.

This phenomenon is one of the most unsavory features of the American legal system. Today the Supremes have done just a little to stop legal a practice that would be criminal if it were practiced by Tony Soprano.

Yesterday, the Supreme Court refused to hear an appeal of a decision rejecting Enron investors' attempt to recover from investment banks. The ruling closes an underreported chapter in American litigation history: how trial lawyers used the Enron scandal to successfully and legally extort billions of dollars from investment banks with a legally meritless lawsuit.

Read the whole thing.