(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.)

Primary Claims Against Individual Anderson Defendants Dismissed

The U.S. District court for the Southern District of Texas dismissed the fraud claims against former Arthur Andersen LLP employees in the Enron litigation. The court concluded that the complaint failed to allege specific fraudulent conduct by each individual with the requisite particularity. Controlling person claims against several of the individuals who were senior executives of the firm survived with regard to underlying violations by the partnership.

Initially, the court concluded that the "group pleading doctrine" did not survive passage of the Private Securities Litigation Reform Act. The court stated that while an entity such as an accounting firm "may be liable for group-issued material, to reverse the transfer and impose liability for a primary violation under Section 10(b) by the employer on an individual" requires "a showing that the individual employee, himself, violated the securities statutes through substantial participation in the fraud." The court stated that the allegations were "collective claims" against the firm as an entity and were "fatally vague and conclusory" with regard to the individuals. The "lead plaintiff fails to identify any person who personally performed the purportedly fraudulent accounting" and "fails to allege that any partner specifically directed a particular auditor to perform a specific action," concluded the court.

The controlling person claims with regard to underlying violations by the firm survived against several senior officers, however. The court rejected the officers' contention that the investors would be required to show control over the entire firm. "Decision-making and policy-making powers would have to be divided and delegated among numerous individuals and groups, " observed the court. Accordingly, the court concluded that "allegations of control over the accountants and auditors involved in the Enron engagements or the policies affecting them would be sufficient to demonstrate controlling person liability."

¨ In re Enron Corp. Securities, Derivative and ERISA Litigation (SD Tex) will be published in a forthcoming REPORT .