The Bush administration rejected a Securities and Exchange Commission recommendation in a key Supreme Court case and did not support shareholders suing Wall Street banks for damages over Enron's collapse.

The Justice Department's solicitor general, who represents the administration in Supreme Court cases, did not file a so-called friend of the court brief by yesterday's deadline. The SEC recently asked Solicitor General Paul Clement to file in support of the Enron shareholders.

The move puts the Bush administration at odds with the SEC and dozens of states and several consumer and investor advocates.

Dan Newman, a spokesman for Enron plaintiffs' law firm Lerach Coughlin, called the administration's stance "an unprecedented example of politics trumping the rule of law, a crass slap in the face to (SEC Chairman Christopher) Cox and the Enron victims from the hyper political Bush Justice Department."

The case, pitting cable TV company Charter Communications against a shareholder that accused it of securities fraud, raises an issue known as scheme liability: whether shareholders also can collect damages from investment banks, attorneys and accountants believed to have aided fraud by their corporate clients.

The high court's ruling in the case could determine whether the Enron plaintiffs' $40 billion lawsuit against the investment banks - stalled by a federal appeals court ruling in March - can proceed. The shareholders contend in the suit that Merrill Lynch, Barclays and Credit Suisse Group should be held equally liable as Enron as participants in the fallen energy company's massive accounting fraud.

In recent weeks, unions, state regulators and plaintiffs' attorneys pressed the SEC to intervene in the case on the side of the Enron shareholders. The agency did so on a 3-2 vote of its commissioners, as Mr Cox, a former Republican congressman appointed by Bush, sided with the two Democrats.

But the Treasury Department, a Cabinet-level agency unlike the independent SEC, took the opposite stance in a letter to Clement's office. The Treasury said US competitiveness could be damaged if shareholders were able to collect equivalent damages from investment banks and other third parties in securities fraud cases.

"Treasury believes uncertainty related to primary liability for third parties could adversely affect the competitiveness of America's financial markets by posing unknown risks for entities that do a broad range of business with public companies," department spokeswoman Jennifer Zuccarelli said Monday.

In the Charter Communications case, a shareholder in the company, StoneRidge Investment Partners, sued Motorola and Scientific-Atlanta, alleging that they participated in sham transactions with Charter. Scientific-Atlanta is now owned by Cisco Systems.

Explore Law

• Columnists

• Law Panel

• Law Reports

• Student Law

Times Recommends

• The best legal yarns this Christmas
• Legal school 'earned £1m by exploiting bar course'
• Axe may fall on 5,000 more City lawyers