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Enron costs Citigroup $2-billion

Citigroup settles a class-action suit over its part in the energy trader's fall, marking the biggest payout pledged to Enron investors.

NEW YORK - Citigroup Inc., the nation's largest financial services company, will pay $2-billion to settle a class-action lawsuit over its role in helping Enron Corp. orchestrate a massive accounting fraud that led to the energy trader's collapse.

The settlement announced Friday marks the largest payout pledged to Enron investors, who claim they were bilked out of billions of dollars when the energy company went bankrupt in 2001.

It also becomes one of the largest corporate settlements in history, but below the $2.58-billion Citigroup agreed to pay WorldCom Inc. investors last year.

Some 50,000 stock and bond holders led by the University of California's board of regents filed claims as part of the lawsuit. The suit alleges that a number of banks and brokerages helped Enron continue operations and raise money even as the company was imploding.

The settlement was the fifth made in the long-running Enron debacle and was seen as a catalyst for future deals with eight other banks targeted in the case, including JPMorgan Chase & Co.

"Citigroup was a substantial participant as a financial institution involved in Enron. . . . This will have a salutary effect on the others," said William Lerach, the lawyer representing the University of California, which lost $144.7-million when Enron declared bankruptcy.

He added: "We can't predict the future, we don't want to try and predict the future, but this development is obviously very favorable for our side of the case."

In addition to JPMorgan Chase, other financial institutions named in the case are Barclays PLC, Credit Suisse First Boston, Merrill Lynch & Co., Toronto Dominion Bank, Royal Bank of Canada, Deutsche Bank AG and the Royal Bank of Scotland.

Among the individuals named as defendants are Enron founder Kenneth Lay, former chief executive officer Jeffrey Skilling and former accountant Richard Causey.

All have pleaded innocent to charges of fraud and conspiracy in a case scheduled to go to trial in January.

The payment agreed to by Citigroup is more than four times the $491.5-million received from deals with Lehman Brothers Holdings Inc., Bank of America Corp., Andersen Worldwide, Enron's outside directors and Enron's former vice chairman, Ken Harrison.

The financial institutions allegedly helped Enron set up partnerships the company used to improperly boost profits while moving billions of dollars of debt off its balance sheet.

That allowed Enron to report higher cash flow from operations and lower debt, making its financial picture look better than it was and artificially inflating the company's stock and bond prices, according to the lawsuit.

Citigroup was accused of helping Enron disguise debt through commodity trades and aiding in other off-balance-sheet financing.

In the settlement, Citigroup denied breaking laws. It said it agreed to the settlement "solely to eliminate the uncertainties, burden and expense of further protracted litigation."

It covers holders of stock and bonds that were issued by Enron between Sept. 9, 1997, and Dec. 2, 2001.

Citigroup shares dropped 4 cents to close at $47.64 on the New York Stock Exchange. Its shares have traded in a 52-week range of $42.10 to $49.99.

Investors who file claims likely won't see a check in the mail for the next few years, Lerach said. The settlement must be approved by a federal judge in Texas, who will determine a formula under which claimants would be paid.

The collapse of Enron caused between $40-billion and $45-billion of market losses, and investors can also seek tens of billions of dollars more in damages under securities laws.

The Enron settlement is the latest in a series of such deals for Citigroup.

Citigroup chief executive Charles Prince said in a statement that 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."

[Last modified June 11, 2005, 00:25:17]