A New Orleans court has overturned the class-certification of a group of shareholders looking to sue major investment banks for more than $40 billion to cover the banks’ alleged role in Enron Corp.’s accounting fraud.

The opinion from the 5th U.S. Circuit Court of Appeals reversed a ruling by the Houston federal judge overseeing all of the Enron cases. In its opinion, the three-judge panel said that class certification can “be the backbreaking decision that places 'insurmountable pressure' on a defendant to settle, even when the defendant has a good chance of succeeding on the merits.”

The panel added later in its ruling that it is appropriate for a court to intervene in such situations, "before settlement may be coerced by an erroneous class certification decision."

The Securities and Exchange Commission pursued Merrill, JPMorgan Chase & Co. and Citigroup Inc. over the banks’ role in Enron's scheme, winning tens of millions of dollars in settlements in 2003 -- though Merrill still went a step further, asking the SEC to file a brief with the New Orleans appeals court in support of the investment bank’s position that on legal grounds, it should not be held liable in the case -- a request that the SEC reportedly considered.

In January, attorneys general from 30 states filed a brief siding with the shareholders and lawyers for the shareholders have said that they will likely appeal the ruling to the U.S. Supreme Court.

In addition to Merrill, JPMorgan Chase and Citigroup, other defendants in the shareholder case include Credit Suisse, the Royal Bank of Canada, the Royal Bank of Scotland, Toronto-Dominion Bank and Barclays Bank PLC.

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