In its ongoing lawsuit on behalf of investors in the Enron scandal, the University of California said, in a statement released Tuesday, that it has reached an $11.5 million settlement with Goldman, Sachs & Co., an investment banking firm accused of marketing notes exchangeable for Enron stock through a false registration.
The UC alleges that Goldman Sachs violated the Securities Act of 1933 by improperly selling notes redeemable for stock that had been distributed by Enron. The money would go to any investors who purchased Enron stock or bonds between Sept. 9, 1997, and Dec. 2, 2001, when Enron filed for bankruptcy.
The $11.5 million settlement has been approved by the UC Regents and is waiting to be accepted by the courts. It comes after a string of victories by investors against companies accused of conspiring with Enron to commit fraud.
As the lead plaintiff in the case, the UC has won more than $7.2 billion for involved parties over the past six years.
“We’ve settled with most banks,” said Chris Patti of the UC general counsel. “The remaining ones are still fighting.”
Still involved in the case are defendants that include Barclays Bank, Credit Suisse First Boston, and Merrill Lynch, along with former Enron officers CEO Jeff Skilling and Chief Accounting Officer Richard Causey.
The Supreme Court dealt the UC a hard blow in January when it upheld a decision by the 5th U.S. Circuit Court of Appeals, rejecting the concept of “scheme liability.”
The principle states that firms can be held liable for defrauding investors regardless of whether they notified the public of their improper actions.
Under the court’s interpretation, a company can only be held responsible for fraudulent actions if it directly presented false statements to its investors.
As a result of the verdict, companies that may have helped Enron commit fraud are protected, because they did not directly lie to investors.
The UC is looking into different ways of prosecuting the remaining defendants.
“We’re going back to the courts for a briefing day in March. We still believe there are viable options,” Patti said.
The UC has also begun looking into distributing the money it has already won from settlements.
“There’s a meeting on Feb. 29 to decide how the funds will be allocated,” said Dan Newman, spokesman for the law firm representing the UC.
While the exact number is difficult to estimate, the university expects the settlement to restore about $20 million of the total $145 million lost by the university.
Most of the lost funds were taken from the UC Retirement Plan portfolio, which is where the money would be returned, said Trey Davis, director of special projections for the UC.
“There would be no direct impact on the school as a result of the funds,” added Davis.
Still, the UC hopes to regain losses and help other purchasers of more than $1.5 million of stock and bonds who were affected by the scandal.
It is estimated that the total amount lost as a result of the Enron scandal is about $40 billion.