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2 US Financial Giants to Pay $255 Million for Role in Enron Scandal - 2003-07-28


Two major U.S. financial institutions have agreed to pay a total of $255 million to settle charges that they helped hide the true financial condition of the now-defunct energy corporation, Enron.

Under Monday's settlement, JP Morgan Chase will pay $135 million, and Citigroup $120 million. The U.S. Securities and Exchange Commission (SEC) says most of the funds will go to compensate victims of the Enron scandal, including stockholders who saw the value of Enron shares plummet from nearly $100 per share to mere pennies over a 2-year period.

Following Enron's 2001 bankruptcy, federal authorities probed JP Morgan Chase and Citigroup's dealings with what had been America's seventh-largest company. Earlier this year, congressional investigators concluded the banks had helped Enron devise complex transactions that hid more than $60 billion in debt.

In a statement, the head of the SEC's enforcement division, Stephen Cutler, said that institutions are in violation of federal laws if they knowingly assist a company in misleading investors. He added that institutions cannot turn a blind eye to the consequences of their actions. For their part, officials with both banks have said they believed their dealings with Enron were lawful.

A portion of Citigroup's payment will go to settle charges it also helped another energy corporation, Dynegy, manipulate its financial statements to underreport debt. Under the settlement, both JP Morgan Chase and Citigroup will avoid prosecution but must alter their business practices.

The Enron bankruptcy was the largest collapse in U.S. corporate history. Along with several other scandals, the Enron case brought new scrutiny to balance sheets in companies across the United States. Once considered a "safe" and profitable investment for retirees, the Enron collapse robbed individual investors and U.S. pension plans of tens of billions of dollars, and was blamed for a drop in overall U.S. investor confidence.