Banks Fail to Settle Enron Claims

Enron Corp. investors and the former energy trader’s lenders, including Citigroup Inc. and J.P. Morgan Chase & Co., have failed after eight months of mediation talks to resolve claims of bank liability for the company’s collapse, people familiar with the matter said Monday.

Lawyers representing investors now are seeking individual settlements with some banks in lieu of the group agreement proposed by the court-appointed mediator, U.S. District Judge William Conner, the people said. Failure to settle as a group would reduce the bargaining power of banks that are slow to resolve the dispute.

“It is usually better to settle early because you get a better deal by being first in line,” said Larry Soderquist, a Vanderbilt University law professor who heads up the school’s Corporate Securities Law Institute. “That way, you don’t wind up with a bigger share of whatever the damages may be.”

Enron investors are seeking more than $30 billion in damages allegedly caused by the Houston-based company’s manipulation of its finances, including its disguising billions of dollars in bank loans as energy trades.

Shareholders, who have a 2006 trial date, allege that the lenders helped Enron perpetrate frauds that led to the demise of what was once the seventh-largest U.S. company by sales.

Along with Citigroup and J.P. Morgan, investors also sued Merrill Lynch & Co., Bank of America Corp., Credit Suisse First Boston, Canadian Imperial Bank of Commerce, Royal Bank of Canada, Toronto-Dominion Bank, Royal Bank of Scotland, Barclays and Lehman Bros. Holding Co. over loans and other financial dealings with Enron. The banks declined to comment.

The financial institutions have denied any wrongdoing in connection with the Enron loans.

Trey Davis, a spokesman for the University of California Board of Regents, the lead plaintiff in the Enron investors’ class-action suit, said he couldn’t comment on whether the talks were stalled. The university said it lost $145 million in pension funds in Enron’s collapse.

In other developments, Citigroup and J.P. Morgan Chase were sued by European and Middle Eastern banks that provided $201.9 million in credit facilities to Enron.

Bayerische Landesbank, Standard Chartered Bank, DZ Bank, Dresdner Bank, Arab Banking Corp. and WestLB filed the suit Monday in U.S. District Court in New York.

The lawsuit claims J.P. Morgan and Citigroup’s Citibank and Salomon Smith Barney duped the banks into funding Enron and seeks $201 million in compensation for the loans as well as unspecified punitive damages.

J.P. Morgan and Citigroup concealed their knowledge of Enron’s “deteriorated true financial condition” and “fraudulently induced” the banks to provide financing, the lawsuit says.

Christina Pretto, spokeswoman for Citigroup, and Adam Castellani, spokesman for J.P. Morgan, declined to comment.