(The news featured below is a selection from the news covered in Federal Securities Law Reporter.)

Criminal Case Proceeds Against Enron Officers

The U.S. District Court for the Southern District of Texas denied a motion to dismiss criminal charges of securities fraud against former senior officers of Enron Corp. on the grounds that the alleged misrepresentations were immaterial. The officers maintained that the misrepresentations alleged in the counts were general expressions of corporate optimism or vague predictions about Enron's future that were immaterial as a matter of law because a reasonable investor would not have considered them in making an investment decision. While the court agreed that standing alone statements of general optimism were often considered immaterial, it stated that "when juxtaposed to allegations of falsity capable of proof by historical fact, generally optimistic statements are not immune from charges of fraud merely because they are vague, conclusory expressions of opinion."

Since the government's allegations were matters of historical fact and that proof of the allegations would show that the officers made false statements with no reasonable basis and knowledge of undisclosed, contrary facts, the court held that the officers' statements were not clearly immaterial as a matter of law. There was a substantial likelihood that disclosure of known facts in contradiction to positive statements made to analysts about goodwill write downs, non-recurring losses and shareholder equity could have been viewed by a reasonable investor as having significantly altered the total mix of information made available about the company's financial condition.

The court also rejected the argument that the statements were immaterial as a matter of law because they did not cause a change in Enron's stock price. Since the government alleged that the officers continued to reassure analysts in an effort to prevent the company's share price from falling even faster than it was, the court was not persuaded that the market's reaction demonstrated that the statements were immaterial.

U.S. v. Causey (SD Tex )