Citigroup is to pay $2 billion to Enron investors who alleged it it helped the Texas-based energy trading company perpetrate an accounting fraud. Citi is the first bank to settle the class-action settlement with stock and bond holders. The sum is less than the $2.58 billion Citigroup agreed to pay WorldCom investors in 2004.
The agreement with Citigroup is expected to prompt settlements from other banks facing claims for their roles in Enron’s collapse in December 2001. Other banks involved include JP Morgan Chase, Barclays, Credit Suisse First Boston, Merrill Lynch, Canadian Imperial Bank of Commerce, Toronto Dominion Bank, Royal Bank of Canada, Deutsche Bank and the Royal Bank of Scotland.
Citigroup did not admit wrongdoing in agreeing to settle. It said the pre-tax payment was fully covered by its existing litigation reserves, which were boosted to $6.7 billion after the WorldCom settlement. The bank does not plan to adjust its remaining reserves and considers them adequate for its exposure to additional pending Enron and investment research-related lawsuits.
Citigroup Chief Executive Charles Prince says resolving major cases like Enron is a priority. “By doing so, we will be better positioned to realize our goals,” he said in a statement. Citigroup was told by the Fed in March to delay any takeover plans until the company tightened internal controls and addressed its regulatory problems.
According to a 485-page amended complaint filed by Enron investors in 2002, Citigroup and other banks hid loans, set up false investments and facilitated phantom sales, receiving multi-million dollar fees in return. Citigroup was accused of using its Delta subsidiary in the Cayman Islands to carry out $2.4 billion in financial “swaps” with Enron.