(The news featured below is a selection from the news covered in the Federal Securities Report Letter, which is distributed to subscribers of the Federal Securities Law Reports.)

Lead Plaintiff and Lead Counsel Appointed in Enron Litigation

A federal judge (SD Tex) has appointed the board of regents of the University of California as lead plaintiff and the law firm of Milberg Weiss Bershad Hynes & Lerach LLP as lead counsel in the Enron securities fraud litigation. In what the court called probably the "largest and most complex" litigation of its kind, the regents presented a "single organized coordinated organization" represented by a "competent and resourceful" law firm. The court expressed confidence that the board would capably monitor the lawyers and pursue plaintiffs' claims.

A putative lead plaintiff, which taken separately had the largest loss of any single entity, was not selected because it had interests atypical to the rest of the class. The entity's purchase of Enron stock after the public disclosure regarding Enron's overstatement of its assets and liabilities and after the SEC announced its investigation created a conflict of interest with pre-disclosure purchasers. Because the entity did not buy this stock in reliance either on the market or on statements by Enron, reasoned the court, it had unique defenses rendering it atypical of the putative class. Although the Private Securities Litigation Reform Act presumes the adequacy of the plaintiff with the largest financial interest in the relief sought, noted the court, this may be rebutted by proof that the proposed entity is subject to unique defenses rendering it incapable of adequately representing the class.

The court also rejected the lead plaintiff request of a group of state retirement funds because the group was artificially created. It was not explained why these three state retirement funds joined to form a group. Finally, the court denied the motions of "niche plaintiffs," purchasers of Enron preferred stock and debt securities, to separate themselves from the common stock purchasers. Their requests to split the action or to appoint multiple lead plaintiffs to represent specialized interests would undermine the purpose of the PSLRA, reasoned the court, especially in light of the common core of facts and legal issues involved. It was also important that the discovery process not disintegrate into "chaos and harassment."

¨ Newby v. Enron Corp. (SD Tex) will be published in a forthcoming REPORT.