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| $10 billion payback
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Never before have burned investors stood to recover so much.(Full story)
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NEW YORK (CNN/Money) -
Citigroup said Friday it agreed to pay $2 billion to settle a class-action suit related to its work for bankrupt energy trader Enron Corp.
The money will be split among investors who bought Enron stock or publicly traded debt securities issued by Enron and Enron affiliates between Sept. 9, 1997 and its December 2001 bankruptcy filing.
The statement from Citigroup (Research) said that it has sufficient reserves to pay the settlement.
The deal, tied for third on the list of the biggest securities class-action settlements in history, still needs the approval of the Board of Regents of the University of California, the lead plaintiff in the case, and the board of Citigroup.
The University of California lost nearly $145 million in its pension and endowment funds due to Enron investments, according to the university.
The deal is also subject to the approval of the United States District Court for the Southern District of Texas.
"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," said a statement from Citigroup CEO Charles Prince. Citigroup denies violating the law in the settlement.
The suit named eight other Wall Street firms, as well as law firms that worked for Enron. Before the settlement announced Friday, plaintiff attorneys had reached agreements worth $491 million with Lehman Brothers, Bank of America, Andersen Worldwide, Enron's outside directors and one Enron executive who was on the board, Ken Harrison.
The number of plaintiffs in the case is not yet final, but lead lawyer William Lerach estimated some 50,000 Enron individual and institutional investors would be affected.
"This agreement is a tremendous recovery for Enron investors and continues a pattern of highly favorable settlements," said a statement from James E. Holst, the university's general counsel.
The case continues against some of the leading firms on Wall Street, including J.P. Morgan Chase, Merrill Lynch, Credit Suisse First Boston and Goldman Sachs.
The suit charged that the Wall Street firms and Enron lawyers helped set up many of Enron's off-the-book partnerships that made the energy trader's books and results look better than they actually were.
The settlements with the investment bank are important for the plaintiffs as they have the deepest pockets among those named in the suit. Enron is bankrupt, and its accounting firm, Arthur Andersen, has been reduced essentially to a shell of a company.
In 2004 Citigroup reached a similar settlement of nearly $2.6 billion in a case involving WorldCom, the telecommunications company that also went bankrupt due to accounting fraud. WorldCom now operates as MCI (Research).
Citigroup made net income of $17 billion in 2004 after taking a $4.95 billion after-tax charge to cover the WorldCom settlement and to increase its legal reserves.
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