Thursday, January 22, 2009

Dismissal of Enron SPE Action Against JPMorgan Chase & Co. Affirmed

A class action suit against JPMorgan Chase & Co. arising from an affiliated special purpose entity involved with Enron Corp. were properly dismissed, concluded the 2nd Circuit. As alleged, the company created special purpose entities, including Mahonia Ltd., to facilitate disguised loan transactions with Enron Corp. According to the plaintiffs, JPMorgan Chase made false and misleading statements or omissions that were material by 1) failing to report the Mahonia transactions as related-party transactions and 2) reporting the Mahonia transactions as trading assets rather than loans.

Initially, the appellate panel found that while the Mahonia transactions should have been identified as involving a related party, the complaint failed to show that that JPMorgan chase acted with scienter in failing to disclose the relationship. In addition, the failure to report the transactions as loans was not actionable because from both a quantitative and qualitative standpoint, the transactions were not material.

ECA v. JPMorgan Chase Co.