Citi Settlement Ends Enron Creditors' 'Mega Claims' Suit
Thursday, March 27, 2008
Citigroup agreed yesterday to pay $1.66 billion to creditors of Enron who lost money when the energy trader collapsed in 2001.
Citi 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., alleged that with the help of banks like Citi, Enron kept creditors in the dark about the company's financial troubles by using shady accounting.
Yesterday'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 denied any wrongdoing, had been trying to get the creditors' suit tossed out. Enron's creditors 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 Citi settled in June 2005 for $2 billion. That shareholder suit has pulled in more than $7 billion from companies including Citi, Bank of America and J.P. Morgan Chase, but late last month, a federal judge delayed a decision on whether to approve a plan to distribute the settlements. Meanwhile, several companies remain as defendants in the shareholder case.
Yesterday's settlement of the creditors' suit has resolved Citi's two largest remaining claims and comes a month ahead of a scheduled April trial.
The $1.66 billion settlement wipes out more than half of the $2.8 billion in litigation reserves Citi held as of Dec. 31, according to a regulatory filing. Citi said earlier this year that those reserves are sufficient to cover all pending suits.
Citi shares fell $1.37, or 5.9 percent, to $22.05 yesterday.
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 did not disclose the amount of that settlement.