But one major class of plaintiff was conspicuously absent -- until last month, when Vanguard Group became the first mutual fund company to enter the fray. In a suit filed in the Chester County, Pennsylvania, Court of Common Pleas, the indexing giant accused Citigroup’s Citibank and Salomon Smith Barney units, along with Enron special-purpose vehicle Delta Energy Corp., of fraudulently selling Vanguard $70 million in Enron bonds. A spokesman for Malvern, Pennsylvaniabased Vanguard, which is seeking unspecified damages, declines comment. A Citigroup spokesman says, “We believe the suit is without merit.” Legal observers, meanwhile, say it’s no mystery why fund companies are reluctant to take their bankers to court. “Here are these guys with huge positions in all of these stocks that melted down amidst fraudulent activity,” says Jeffrey Liddle, a prominent securities litigator and partner at New Yorkbased law firm Liddle & Robinson. “All I can think is that these money managers don’t want to draw any more negative attention to their own ineptitude. Also, things wind up coming out, and regulators start to ask questions.” To take that risk, Vanguard must have concluded that the “numerous financial and accounting scams” and “sham prepay transactions,” as the complaint described them, were particularly egregious.
