UBS PaineWebber has been sued for fraud by two investors who accuse the firm of making "manipulative and deceptive"' recommendations to buy Enron Corp. stock even as it was selling the stock for Enron executives, according to a suit filed in federal court in Houston.
The suit says that PaineWebber knew or should have known that Enron was in trouble or committing fraud. The suit points out that PaineWebber was issuing buy recommendations on Enron stock even as its own broker, Chung Wu, had warned his clients to sell it. Wu was ultimately fired for his "unauthorized" correspondence, but not for what he said, the brokerage has stated.
Even as Wu was warning his clients about Enron’s worsening financial condition, "Other PaineWebber brokers in the Houston, Texas office were selling as much Enron stock as they possible could for highly placed Enron clients, despite the fact that inside PaineWebber, brokers commonly joked about Enron’s stability," the suit says. The suit claims that PaineWebber was pandering to Enron and fired Wu the day that Enron officials found out. "PaineWebber was unable to withstand the pressure for one full work day . . . PaineWebber succumbed and summarily fired Wu," the document says. "The pandering didn’t stop there," it continues, "PaineWebber took the affirmative step of contacting Wu’s clients and retracting Wu’s representations!"
A UBS PaineWebber spokesperson says the lawsuit is without merit and that the firm intends to vigorously defend itself.
"PaineWebber perpetrated fraud upon the market in its recommendation of Enron stock as a strong buy, even after it knew or should have known that Enron was manipulating its books and that the company would ultimately fail or be greatly devaluated [sic], causitng the stock value to fall," the suit, filed in US District Court in Houston, says. The suit charges that PaineWebber "breached its fiduciary duty by putting its financial interests above that of its clients," the suit charges. The two plaintiffs—a Mississippi-based client and a Robstown, Texas PaineWebber client—seek their investments back as well as punitive damages.
"The Enron situation is very ugly," a UBS PaineWebber rep in Texas told Registered Rep. "We’re not going to be the only firm sued in this matter. This Enron disaster is going to have long lasting ramifications on us, the firms and the industry."
The complaint was filed on March 7 by Spencer & Associates P.C., on behalf of Enron shareholders Kevin Lamkin and Janice Schuette, the law firm says.
The suit seeks class-action status.