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Friday, June 10, 2005

Citigroup to Pay $2 Bln in Enron Lawsuit

Citigroup Inc. (C.N: Quote, Profile, Research) , the world's largest financial services company, on Friday said it will pay $2 billion to Enron Corp. investors who accused it of helping engineer a massive accounting fraud at the energy trader.

The class-action settlement is one of the largest in corporate history, though it is less than the $2.58 billion that Citigroup agreed to pay WorldCom Inc. investors in 2004.

The settlement may put pressure on a series of other major banks to settle with Enron investors.

Citigroup did not admit wrongdoing in agreeing to settle. It said the pre-tax payment is fully covered by its existing litigation reserves and that it does not plan to adjust its remaining reserves.

"It is a key priority for Citigroup to resolve major cases like this one and to put a difficult chapter in our history behind us," Citigroup Chief Executive Charles Prince said in a statement. "By doing so, we will be better positioned to realize our goals."

The settlement must be approved by the bank's board of directors and the board of regents of the University of California, the lead plaintiff for investors in the case. A federal court in Houston also must approve the agreement.

Other financial institutions facing claims for their role in Enron's December 2001 collapse include JP Morgan Chase and Co. (JPM.N: Quote, Profile, Research) , Barclays Plc (BARC.L: Quote, Profile, Research) , Credit Suisse First Boston (CSGN.VX: Quote, Profile, Research) , Merrill Lynch (MER.N: Quote, Profile, Research) , Canadian Imperial Bank of Commerce (CM.TO: Quote, Profile, Research) , Toronto Dominion Bank (TD.TO: Quote, Profile, Research) , Royal Bank of Canada (RY.TO: Quote, Profile, Research) , Deutsche Bank AG (DBKGn.DE: Quote, Profile, Research) and the Royal Bank of Scotland (RBS.L: Quote, Profile, Research) .

"We are very pleased with the size of the settlement," said William Lerach, the lawyer representing the regents of the University of California, which lost millions when Enron collapsed.

"It's particularly significant in that several large, similarly situated banks remain as defendants in the case, so this is a step down the road, not the last step on the road."

Lerach, who estimates that the recoverable damages for Enron investors are in the "tens of billions of dollars," declined comment on whether he is in settlement discussions with any other banks.

Two other banks previously reached settlements with Enron investors. Lehman Brothers (LEH.N: Quote, Profile, Research) agreed to a $222.5 million settlement, while Bank of America agreed to pay $69 million.

Lerach said the settlement with Citigroup came about after a series of discussions.

"We had talked on and off at different points in time," he said.

In settling the WorldCom case last year, Citigroup helped spur other banks to make similar settlements.

Investors in WorldCom are expected to recover about $6 billion, the largest U.S. securities settlement ever, from more than a dozen banks. The plaintiffs in that suit, led by New York State Comptroller Alan Hevesi, accused the banks of helping WorldCom sell bonds when they should have known the company was lying about its finances.

Enron filed for bankruptcy after its use of off-balance sheet deals to hide tens of billions of dollars in debt were revealed. Its meltdown sparked a flurry of shareholder lawsuits and numerous criminal charges against the company and its management.

Former Enron Chairman Ken Lay and ex-Chief Executive Jeffrey Skilling are scheduled to go on trial in January 2006 for their role in the scandal.

Martha Graybow
© Reuters 2005


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