Former Enron Corp investors have reaped a legal bounty in the past week: US$4.2 billion in settlements from JPMorgan Chase & Co and Citigroup Inc as the banks seek to resolve lawsuits over their roles in aiding the failed energy trader's fraudulent finances.
JPMorgan announced the largest Enron settlement to date, US$2.2 billion, late on Tuesday in a lawsuit led by the University of California. About 50,000 Enron stock and bond holders filed claims as part of the suit.
The agreement is the largest settlement deal in lawsuits against banks, advisers and Enron executives connected to the energy trader's 2001 bankruptcy. It also comes just four days after Citigroup Inc, the nation's largest financial-services company, agreed to pay investors US$2 billion to settle the lawsuit. JPMorgan is No. 3 in terms of its market capitalization.
The suit alleges that a number of banks and brokerages helped Houston-based Enron continue to operate and raise money even as the company was imploding.
The settlement marks the sixth in the long-running Enron debacle, with some US$491.5 million in deals being made with Lehman Brothers Holdings Inc, Bank of America Corp, Andersen Worldwide, Enron's outside directors and Enron's former vice chairman, Ken Harrison.
An attorney for the investors said the reason JPMorgan is paying US$200 million more than Citigroup is because the University of California has offered incentives for those that strike settlements sooner rather than later.
"These were two giant steps on the road, but we have a long way to go before the end of the road," said William Lerach, the lawyer representing the University of California, which lost US$144.7 million when Enron declared bankruptcy. "There will be other large settlements coming soon."
Lerach, and other attorneys for the university are still litigating with 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 Jeffrey Skilling and former top accountant Richard Causey. All have pleaded not guilty to charges of fraud and conspiracy in a case scheduled to go to trial in January.
All the settlements still must be approved by a federal judge in Texas, who will determine a formula under which claimants would be paid.
The financial institutions allegedly helped Enron set up partnerships that the company used to improperly boost profits while moving billions of dollars of debt off its balance sheet. JPMorgan Chase was accused of helping Enron engage in large prepaid transactions in which debt was concealed from the balance sheet to inflate the bottom line. It was also accused of issuing bullish reports that stressed Enron's liquidity while the firm was near collapse.