Citigroup Embarrassed Again, As Enron Law Suit Is Launched

Citigroup is being sued by investors who allege they were defrauded when they bought securities tied to the credit worthiness of the bankrupt, Houston based energy trading company, Enron. The suit, brought by Bank of New York on Monday in

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Citigroup is being sued by investors who allege they were defrauded when they bought securities tied to the credit-worthiness of the bankrupt, Houston-based energy trading company, Enron.

The suit, brought by Bank of New York on Monday in New York State Supreme Court on behalf of numerous investors in Enron-related securities, is the latest in a spate of actions aimed at recovering billions of dollars lost when Enron collapsed into bankruptcy in 2001.

Plaintiffs include distressed debt funds Angelo Gordon & Co. and Appaloosa Investment LP, who charged in the 77-page complaint that Citigroup concocted a fraudulent scheme to raise billions of dollars from the sale of notes called “Yosemite” securities.

Citigroup, the investors said, then used the funds to make “disguised” loans to Enron “to reduce its own Enron credit risk, prop up Enron, cover up Enron’s failing financial condition and generate significant fees in the process.”

The complaint alleges fraud, breach of contract and fiduciary duty, and negligence in the Yosemite transactions, which it said took place between 1999 and 2001.

Enron sought Chapter 11 bankruptcy protection on 2 December 2001.

A Citigroup spokeswoman was quoted as denying any improprieties: “The purchasers of these notes are among the largest and most sophisticated financial institutions in the world, and we complied fully with all our obligations in dealing with them.”

Bank of New York is filing the lawsuit as trustee on behalf of the investors. He said the bank has no financial interest in the Yosemite securities and the lawsuit will not affect its financial results.

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