Citigroup Rolls Dice on Trial in Enron Creditor Litigation
It wasn’t just Enron Corp. that was responsible for the massive fraud that wiped out the once-mighty energy trader, creditors contend. Nearly a dozen banks also participated, they argue. And, of the 11 financial institutions accused of wrongdoing, 10 have settled for a total of $1.73 billion, upping the ante for Enron creditors, who have so far received 36 cents for each dollar they were owed.
Now observers are waiting to see whether a gamble taken by the 11th bank, Citigroup Inc., pays off. Rather than negotiate a settlement, Citigroup has opted to roll the dice and go to trial on the creditors fraud claim, reports Bloomberg. However, the trial, which is scheduled to start in April in New York, could result in a significantly bigger bill for the bank than settling—although it could also, of course, result in zero liability, if Citigroup wins. (It isn’t clear, at this point, whether the case will be tried in bankruptcy court or in federal district court.)
The bank presently has set aside a $2.8 billion reserve to cover the estimated value of the Enron creditor claims. But creditors are now contending that Citigroup should have to cover all unpaid damages attributable to the entire group of banking defendants, which would amount to $18 billion.
Experts appear dubious about the wisdom of taking the case to trial, according to the news agency.
“There’s a lot of evidence that financial irregularities occurred and they were aided and abetted and assisted by the banks,” says John Coffee, a professor at Columbia Law School.
“Everyone is looking at Citi to see the kind of pocket it has left,” adds Nancy Rapoport, a law professor at the University of Nevada who co-authored a book about Enron. “Citi has a lot to be worried about.”
However, Citigroup contends that the bank clearly was not at fault for Enron’s 2001 collapse, reports the Wall Street Journal (sub. req.).
“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 says in a bankruptcy court filing.