NEW YORK (AP) _ Citigroup Inc. agreed Wednesday to pay $1.66 billion to creditors of Enron Corp. who lost money when the energy trader collapsed in 2001.
Citigroup was the last remaining defendant in what was known as the "Mega Claims" lawsuit, filed in 2003 against 11 banks and brokerages. The filer, called Enron Creditors Recovery Corp., alleges that with the help of banks like Citigroup, Enron kept creditors in the dark about the company's financial troubles by using shady accounting.
Wednesday's settlement — plus previous bank settlements and Enron's subsequent release of $1.7 billion held in reserves — gives those creditors more than $5 billion, Enron said. That amounts to 37.4 cents on each dollar the creditors had tied up in Enron, according to Enron.
Citi, which denies any wrongdoing, had been trying to get the Enron suit tossed out. Enron's creditors — which include individual employees and small companies who lent Enron money — had filed claims against Citi that could have potentially totaled about $21 billion.
Now, a month ahead of the scheduled April trial, Wednesday's settlement has resolved the two largest remaining claims against Citi, the bank said.
Still, the $1.66 billion settlement wipes out more than half of the $2.8 billion in litigation reserves Citi held as of Dec. 31, 2007, according to a regulatory filing. Citi said earlier this year those reserves are sufficient to cover all pending suits.
Several years after the Enron collapse, Citi is wrangling with its own financial problems. A plunge in demand for assets backed by mortgages caused the bank to suffer a nearly $10 billion loss in the fourth quarter of 2007, its biggest loss ever.
Citigroup shares fell $1.25, or 5.3 percent, to $22.17 by midday trading Wednesday.
In addition to paying Enron $1.66 billion, Citi is waiving about $4 billion in claims it made against Enron. Citi said it agreed to a separate settlement resolving all disputes with the holders of Enron credit-linked notes. It would not disclose the amount of the separate settlement.
Before it filed for bankruptcy, Enron in its hey-day had been the seventh-largest company in the United States.
Enron's collapse into bankruptcy obliterated thousands of jobs, more than $2 billion in pension plans, and more than $60 billion in market value. It also resulted in the convictions of Enron's founder Kenneth Lay and former chief executive Jeffrey Skilling for fraud, conspiracy and other charges. Lay died in July 2006 of heart disease, and Skilling is serving a sentence of more than 24 years. Lay's death vacated his conviction.
Wednesday's agreement brings Citi's total Enron-related settlements to $3.66 billion. Back in June 2005, Citi agreed to pay $2 billion to settle a class-action lawsuit with people who had invested in Enron.
The $40 billion class-action lawsuit for Enron investors, separate from the creditors lawsuit, has pulled in $7.2 billion from such financial institutions as Citi, Bank of America Corp. and JPMorgan Chase & Co.
But late last month, a federal judge delayed a decision on whether to approve a plan to distribute the settlements. Meanwhile, there are several companies that remain as defendants, including Merrill Lynch & Co., Credit Suisse First Boston and Barclays Bank PLC.
AP Business Writer Lauren LaCapra in New York contributed to this report.
Copyright 2008 The Associated Press.