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Lone Holdout Citigroup Settles With Enron Creditors

In a step that moves Enron Corp. a big step forward in putting its past behind it, Citigroup Inc. agreed to pay $1.66 billion and give up an estimated $4.25 billion in claims to settle a six-year-old lawsuit with creditors over the bank's alleged role in the energy trader's demise.

The Enron Creditors Recovery Corp. (ECRC), as the former energy giant is now known, had been seeking as much as $20 billion from Citigroup in the case, which was handled by the U.S. Bankruptcy Court for the Southern District of New York (Enron Creditors Recovery Corp. v. Citigroup Inc., 03-9266). As part of the agreement, ECRC agreed not to challenge $2.4 billion in claims by holders of credit-linked notes tied to Citigroup, which settled separate lawsuits with noteholders. Citigroup neither admitted nor denied any wrongdoing in the case. The bank had attempted to have the case moved to a different court for a jury trial, but that request was denied earlier this month.

The settlement "accelerates distribution to creditors of significant cash trapped in the estate," said ECRC President John Ray III. The settlement still must be approved by U.S. Bankruptcy Judge Arthur Gonzalez, who has overseen Enron's bankruptcy case from the beginning.

Creditors in September 2003 launched a battle with the financial institutions that had supported Enron, filing lawsuits against 11 banks that accused them of conspiring with former Enron officials to manipulate the company's finances. The ECRC accused the banks of helping to set up a series of structured financial transactions with Enron that eventually forced it into bankruptcy in late 2001. All of the banks except Citibank already had settled with the creditors group: Barclays plc, Canadian Imperial Bank of Commerce (CIBC), Credit Suisse Group, Deutsche Bank AG, Fleet Bank NA, JPMorgan Chase & Co., Merrill Lynch, Royal Bank of Canada, Royal Bank of Scotland Group plc and Toronto-Dominion Bank.

The Supreme Court in January rejected without comment a $40 billion lawsuit by former Enron investors that alleged securities fraud by some of the investment banks (see NGI, Jan. 28). The shareholders had been seeking $40 billion in a lawsuit against Merrill Lynch & Co., Credit Suisse and Barclays. Several banks, including Chase, Citigroup and CIBC, earlier had agreed to pay investors $7.2 billion.

Since Enron's bankruptcy plan was approved by the courts in 2004, the former company's creditors have recovered about 36 cents on the dollar. The Citigroup settlement raises the recovery amount to about 37.4 cents on the dollar, ECRC noted. Creditors may continue to pursue litigation related to equity transactions and may sell Enron's remaining assets.

The Enron Task Force, which was created by the U.S. Justice Department to investigate wrongdoing at the Houston-based firm, has to date prosecuted 33 individuals and the accounting firm Arthur Andersen.

Former Enron CEO Jeffrey Skilling, who was sentenced to 24 years in prison in 2006, is scheduled to have his appeal heard in the next few days before the Fifth U.S. Circuit Court of Appeals in New Orleans, Case No. 06-20885 (see NGI, Sept. 10, 2007). In a court filing, Skilling claims that the Enron Task Force during the original trial "suppressed a massive amount of evidence" that was "favorable" and "material" to his defense. Skilling requested that the indictments against him be dismissed with prejudice "in order to punish the government for unscrupulous conduct and to deter misconduct."

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