Wednesday March 26, 2:03 pm ET
By Madlen Read, AP Business Writer
Citigroup to Pay $1.66 Billion to Settle Enron Creditors Bankruptcy Lawsuit
NEW YORK (AP) -- Citigroup Inc. agreed Wednesday to pay $1.66 billion to creditors of Enron Corp. who lost money when the energy trader collapsed in 2001.
Citigroup was the last remaining defendant in what was known as the "Mega Claims" lawsuit, a bankruptcy suit filed in 2003 against 11 banks and brokerages. The filer, called Enron Creditors Recovery Corp., alleges that with the help of banks like Citigroup, Enron kept creditors in the dark about the company's financial troubles by using shady accounting.
Wednesday's settlement -- plus previous bank settlements and Enron's subsequent release of $1.7 billion held in reserves -- gives those creditors more than $5 billion, Enron said. That amounts to 37.4 cents on each dollar the creditors had tied up in Enron, according to Enron.
Citi, which denies any wrongdoing, had been trying to get the creditors suit tossed out. Enron's creditors -- which include individual employees and small companies who lent Enron money -- had filed claims against Citi that could have potentially totaled about $21 billion.
The creditors' suit is separate from a $40 billion class-action lawsuit by shareholders, which Citigroup already settled in June 2005 for $2 billion.
That shareholder suit has pulled in more than $7 billion from companies including Citi, Bank of America Corp. and JPMorgan Chase & Co., and as of January planned to pay out stockholders $6.79 per share of common stock and $168.50 per share of Enron's stock-like preferred shares, according to a mailing to Enron investors.
But late last month, a federal judge delayed a decision on whether to approve the plan to distribute the settlements. Meanwhile, there are several companies that remain as defendants in the shareholder case, including Merrill Lynch & Co., Credit Suisse First Boston and Barclays Bank PLC.
For Citigroup, Wednesday's settlement of the creditors' suit has resolved the bank's two largest remaining claims. The settlement arrives a month ahead of a scheduled April trial.
Still, the $1.66 billion settlement wipes out more than half of the $2.8 billion in litigation reserves Citi held as of Dec. 31, 2007, according to a regulatory filing. Citi said earlier this year those reserves are sufficient to cover all pending suits.
Several years after the Enron collapse, Citi is wrangling with its own financial problems. A plunge in demand for assets backed by mortgages caused the bank to suffer a nearly $10 billion loss in the fourth quarter of 2007, its biggest loss ever.
Citigroup shares fell $1.25, or 5.3 percent, to $22.17 by midday trading Wednesday.
In addition to paying Enron creditors $1.66 billion, Citi is waiving about $4 billion in claims it made against Enron. Citi said it agreed to a separate settlement resolving all disputes with the holders of Enron credit-linked notes. It would not disclose the amount of that settlement.
Before it filed for bankruptcy, Enron in its hey-day had been the seventh-largest company in the United States.
Enron's collapse into bankruptcy obliterated thousands of jobs, more than $2 billion in pension plans, and more than $60 billion in market value. It also resulted in the convictions of Enron's founder Kenneth Lay and former chief executive Jeffrey Skilling for fraud, conspiracy and other charges. Lay died in July 2006 of heart disease, and Skilling is serving a sentence of more than 24 years. Lay's death vacated his conviction.
AP Business Writer Lauren LaCapra in New York contributed to this report
