First came Enron, followed shortly thereafter by Arthur Andersen. Now it looks as though their allegedly shady business dealings have spurred a contagion effect throughout the business realm after lawyers representing the University of California added nine investment banks and two law firms to its suit last week.
The securities fraud lawsuit contends that Enron executives could not have maintained the facade as a profitable energy giant without the help from outside financiers.
"This fraud could not have been accomplished by a few corporate executives, no matter how dishonest or energetic they may have been," lead council William Lerach said in a statement.
Filed on behalf of large investors, the first suit accuses the banks and law firms of amassing large fees and approving securities deals that hid Enron's corporate debt and inflated its profits.
The second suit, on behalf of employees who lost the bulk of their retirement savings when Enron collapsed last year, added several investment banks to the lawsuit as well.
Both suits name Merrill Lynch & Co., J.P. Morgan Chase & Co., Credit Suisse First Boston and Citigroup Inc. The investor suit also added Canadian Imperial Bank of Commerce, Bank of America Corp., Barclays Bank PLC, Deutsche Bank AG and Lehman Brothers Holding Inc. as defendants.
Both suits also charge that Enron's chief Houston law firm, Vinson & Elkins, aided the company in its pursuit to hide its true financial position. The investor suit further charged Chicago-based firm Kirkland & Ellis as well, alleging that both firms knowingly approved questionable partnerships and financial deals in addition to approving false or misleading filings with the Securities and Exchange Commission.
While the lawsuit may take years to litigate, one thing is certain: an increasing cloud of doubt is beginning to plague corporate America.
Investment bankers typically have been cast in a less-than flattering light after insider trading scandals pervaded Wall Street throughout the 1980s. Hollywood movies such as "The Bonfire of the Vanities" and "Wall Street" certainly aid the perception of financiers as completely devoid of ethics in their pursuit of profits.
However, integrity is more important than ever in business. With advances in technology, which allow for virtually complete transparency of corporate actions, companies must maintain ethical practices or risk possible ruin, said R. Edward Freeman, Olsson professor of business administration at the Darden School.
Although government agencies such as the U.S. Securities and Exchange Commission do exist to regulate business practices, they monitor illegal actions involving investment, not questions of ethical violations per se. Therefore, companies generally must rely on themselves for a concrete system of guidelines.
Ethical practices start with the firms' "leaders making it clear that unethical behavior won't be tolerated," Freeman said. "Companies need to stand for something
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