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CIBC Proposes $2.4B to Settle Enron Fraud Claims

In the largest class action settlement to date in the ongoing Enron Corp. bankruptcy, the Toronto-based Canadian Imperial Bank of Commerce (CIBC) proposed last Tuesday to pay $2.4 billion to settle fraud claims by investors.

The lawsuit followed a December 2003 settlement of civil charges by the Securities and Exchange Commission (SEC) and the Department of Justice for CIBC's role in defrauding investors in the years leading up to Enron's bankruptcy in late 2001 (see NGI, Dec. 29, 2003). A former managing director with CIBC also agreed to pay a fine last year (see NGI, July 19, 2004).

The SEC charged CIBC and three executives with helping Enron to mislead investors through a series of 34 complex structured financial transactions that were termed "asset sales" instead of loans between June 1998 and October 2001.

The CIBC transactions allowed Enron to raise its earnings by more than $1 billion and avoid disclosure of more than $2.6 billion in debt, according to the SEC. CIBC agreed to pay the SEC $80 million to settle the charges, but it never admitted nor denied the allegations.

The proposed settlement brings the total recovered so far for former Enron investors to about $7 billion. Former investors were estimated to have lost more than $46 billion with Enron's bankruptcy.

Class action settlements against Enron have already been reached with J.P. Morgan Chase & Co. for $2.2 billion and with Citigroup Inc. for $2 billion. A group of banks that advised Enron also settled for about $500 million.

Still to be reached are agreements with Merrill Lynch & Co. and Credit Suisse First Boston, Barclays plc, Toronto Dominion Bank, Royal Bank of Canada, Royal Bank of Scotland and Deutsche Bank AG.

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