Slightly OT: Citigroup to Pay $1.66 Billion To Settle Enron Litigation
>>>I beat the drum that 2008 will be 2002 redux. I didn't know that Citi was (allegedly) helping Enron cook the books or otherwise take advantage of Enron. This leads to several important points:
1) Has the culture changed in any of these IB's? IOW, won't we have a march of similar suits associated with the subprime scams. Some of these suits will have no merit, but they will come.
2) This will actually free up some loss reserves for Citi,
3) These boys all want government bailouts. That gets harder and harder to sell to the public when the sordid past is brought to light, and
4) If you hadn't learned this lesson before, never trust Wall Street. BTW: I can't tolerate whining cynics who say stuff like that. But I have been close enough to the mountain and can claim some direct experience.<<<
By DONNA KARDOS
March 26, 2008 10:05 a.m.
One day before Citigroup Inc. was expected to ask to judge to dismiss the lawsuit, Enron Creditors Recovery Corp. said it reached an agreement in principle with the bank to settle its bid to recover billions from the banking giant for its alleged role in Enron's 2001 collapse, set to go to trial next month.
The move represents a huge step toward the final settlement of a lawsuit Enron waged in September 2003 against 11 banks, accusing them of conspiring with former Enron officials to manipulate the energy company's finances. Enron says the banks helped set up a series of structured finance transactions with Enron that buried the company in debt, forcing it into bankruptcy.
All the banks except Citigroup have since settled. Enron was seeking $18 billion in damages from Citigroup and wanted to recover an additional $3 billion in prebankruptcy payments made to Citigroup. The settlement calls for Citigroup to pay $1.66 billion, with indemnification claims and an additional $249.4 million of claims Citigroup made against Enron being waived.
In addition, Enron will also allow claims of parties holding some $2.4 billion in Enron credit-linked notes to proceed. To reduce its exposure to the company, Citigroup approached major institutional investors, including insurance companies and mutual funds, to invest in a series of notes known generally as "Yosemite" securities. Those holders will receive some $2.1 billion plus interest, gains and dividends.
Citigroup said separate litigation with the noteholders has been settled. Reserves will cover all of the settlements, the company added.
The deal will also allow the release of an additional $1.7 billion of cash held in a disputed claims reserve. Both payments will be part of a special distribution to creditors after the settlement gets bankruptcy court approval. The funds won't be part of Tuesday's creditor distribution, estimated at over $1 billion.
Enron received nearly $1.76 billion in cash from settlements with the other 10 banks. The case, known as the "Mega Claims" litigation, was scheduled for an April 28 trial that was expected to last months. The trial would come at a bad time for Citigroup, which has been battered by the U.S. housing slump, taking billions in losses that forced the ouster of its chief executive.
In January, Citigroup asked a judge to toss the $21 billion lawsuit, arguing that Enron, not the bank, was at fault for its collapse. "Run by felons and self-confessed fraudsters, and under the supervision of a compliant board of directors that at best chose either not to look, or to look the other way, Enron as a matter of law has only itself to blame," Citigroup had said.
Citigroup last week sought to move the case to federal court, arguing it was too complex for a bankruptcy court. But a federal judge denied the request to take the case away from U.S. Bankruptcy Judge Arthur Gonzalez, who has presided over Enron's bankruptcy since 2001.
Enron, now known as Enron Creditors Recovery Corp., was one of the world's biggest energy companies before it collapsed amid an accounting scandal in 2001. Its chairman, Kenneth Lay, was convicted in 2006 on 10 counts of fraud but died before he could be sentenced. Other top executives are currently serving prison terms. |
