Assuming that you have not already been chloroformed by the recent discussion of the Nigerian Barge criminal case, this AP story reports on a development last week that tees up Merrill Lynch‘s involvement in that transaction where it ought to be examined — in a civil lawsuit.
This past Friday, the plaintiffs in the main Enron securities fraud class action lawsuit filed a motion for partial summary judgment against Merrill Lynch requesting that the federal district court find that the jury findings in the Nigerian Barge criminal case collaterally estop Merrill from defending itself in the class action on the liability issue regarding its alleged participation in Enron’s misleading financial reporting to investors. If U.S. District Judge Melinda Harmon were to grant the motion, then the parties would proceed to trial with a liablity finding against Merrill Lynch and the only issue for the jury to determine in regard to Merrill would be the amount of damages that should be assessed against Merrill. As Morgan Stanley can tell you, that’s not a position that a corporate defendant wants to be in at the beginning of a trial.

Interestingly, the lawyers for the plaintiffs in the Enron class action apparently prepared a similar motion and presented it to Canadian Imperial Bank of Commerce, which then chose to settle last week rather than take the risk of being left with only damage issues during the trial on the merits. The same tactic was used on Merrill, which apparently rejected the opportunity to settle before the motion was filed.
Merrill Lynch has already paid $80 million to the Securities and Exchange Commission to settle civil allegations related to its involvement in the Nigerian Barge transaction, but — as is common in such settlements — Merrill neither admitted nor denied wrongdoing. I have not had an opportunity to read the motion yet, but my inital sense is that it is a longshot, at best. Merrill was not a party to the criminal proceeding against the four former Merrill Lynch defendants who were convicted in the Nigerian Barge criminal case, so a threshold issue exists as to whether application of collateral estoppel is even appropriate. Moreover, as noted in the blog thread on the criminal case, the evidence during the Nigerian Barge criminal trial was equivocal, at best, as to whether Merrill did anything wrong in connection with the transaction.