Jan. 22 (Bloomberg) -- The U.S. Supreme Court rejected an appeal by Enron Corp. investors, refusing to resurrect a $40 billion suit against Merrill Lynch & Co. and other banks that lent money to the now-defunct energy trader.

The justices made no comment in turning away the appeal today, acting a week after putting new limits on shareholder suits against a company's banks and business partners. The Enron investors challenged a lower court ruling that barred them from joining together in a class-action suit against Merrill Lynch, Credit Suisse Group, Barclays Plc and other banks.

The rebuff likely means an investor group led by the University of California regents won't add to the $7.3 billion they collected in settlements with other Enron banks. More broadly, the Supreme Court sent a new signal about its skepticism toward shareholder suits, refusing even to order a lower court to reconsider the Enron case in light of last week's ruling.

The investors sought to distinguish their suit from the one rejected by the high court last week, saying the Enron case came ``in the context of fraud perpetrated by financial professionals engaged in fraudulent dealings in our securities markets.''

Last week's 5-3 Supreme Court ruling, Stoneridge v. Scientific-Atlanta, involved a suit by Charter Communications Inc. investors against two of the cable company's suppliers. The majority said the alleged wrongdoing in that case ``took place in the marketplace for goods and services, not in the investment sphere.''

No Exception

The court's rejection of the Enron investor appeal came without any published dissent. The rebuff ``further confirms that there is no financial services exception'' to the Stoneridge ruling, said Stephen Shapiro, who successfully represented the suppliers in last week's case.

The lead lawyer for the Enron investors, Patrick Coughlin of Coughlin Stoia Geller Rudman & Robbins, said the group will try to revive its case by shifting the focus to analyst reports issued by the banks, rather than their role in setting up the mechanisms used to deceive investors.

``I'm disappointed, but we'll go back to the district court now,'' Coughlin said.

That legal theory isn't likely to succeed, according to James Cox, a Duke University securities law professor who has been supportive of the investor claims. The investors will have to show that the analyst reports, and not some other factors, caused them to lose money. The Supreme Court in 2005 made it harder for investors to make that showing.

`Insurmountable' Hurdles

The investors will face ``significant if not insurmountable loss-causation issues,'' Cox said.

Cox said the rejection of the Enron appeal ``just shows you how out of step the Stoneridge holding is with investor protection.''

Justice Anthony Kennedy, who wrote the Stoneridge decision, didn't take part in the court's consideration of the Enron case. Although Kennedy gave no explanation, his son, Gregory Kennedy, works as an investment banker at Credit Suisse in New York.

Credit Suisse spokeswoman Victoria Harmon said the company is ``pleased with the decision of the court.''

Houston-based Enron was the world's largest energy-trading company, with a market value of as much as $68 billion, before it collapsed in December 2001. The bankruptcy, the second-largest in U.S. history, wiped out more than 5,000 jobs and at least $1 billion in retirement funds.

Investor Accusations

Enron's investors accused the company's banks of helping late Chairman Kenneth Lay and ex-Chief Executive Officer Jeffrey Skilling disguise debt as loans, finance sham energy trades and use off-the-books partnerships to hide losses and inflate revenue.

Investors settled claims against JPMorgan Chase & Co. for $2.2 billion, Citigroup Inc. for $2 billion and Canadian Imperial Bank of Commerce for $2.4 billion.

The group's lead lawyer had been Bill Lerach, who in October pleaded guilty to secretly paying clients of his former firm, Milberg Weiss, to participate in shareholder lawsuits. Coughlin, Lerach's former partner, has since taken over the lead role.

In barring the suit from going forward as a class action, the 5th U.S. Circuit Court of Appeals in New Orleans said it couldn't presume that shareholders, when making investment decisions, relied on the alleged wrongdoing by the banks.

Shareholder Reliance

Last week's Supreme Court decision used somewhat similar reasoning, though not in the class action context. The court said the Charter shareholders didn't show they relied on the alleged deception by suppliers Motorola Inc. and Scientific-Atlanta Inc.

Kennedy said federal securities-fraud law ``does not reach all commercial transactions that are fraudulent and affect the price of a security in some attenuated way.''

``Having read Stoneridge, I can't imagine that the court would have anything to criticize in the 5th Circuit case in terms of its understanding of the law,'' said Georgetown University securities-law professor Donald Langevoort.

New York-based Merrill and the other banks in the Enron case urged the Supreme Court simply to reject the appeal, rather than send the case back to the lower court. The Stoneridge case ``involved facts extraordinarily similar to the facts that are present here,'' the banks argued.

The case is Regents of the University of California v. Merrill Lynch, 06-1341.

To contact the reporter on this story: Greg Stohr in Washington at gstohr@bloomberg.net.

Last Updated: January 22, 2008 14:11 EST