The Marketplace Report: Citigroup's Enron Payout

Madeleine Brand talks to Tess Vigeland of Marketplace about the agreement by Citigroup to pay $2 billion to Enron shareholders to help settle a class-action lawsuit. The shareholders accused Citigroup of helping Enron carry out massive accounting fraud before the energy giant collapsed.

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MADELEINE BRAND, host:

Back now with DAY TO DAY. I'm Madeleine Brand.

Enron's top executives are still awaiting trial, but there's a big development today in that scandal. The world's largest financial services company, Citigroup, says it will pay $2 billion to settle a class-action lawsuit over its role in Enron's collapse. Joining us from Los Angeles is "Marketplace's" Tess Vigeland.

And, Tess, how was Citigroup involved in the Enron mess?

TESS VIGELAND ("Marketplace"): Well, Madeleine, Citigroup is one of several banks sued by Enron's shareholders. I will quickly add that as part of this settlement Citigroup neither admits nor denies any wrongdoing. But the allegation here was that it and several other banks basically enabled the fraud at Enron, helped it hide billions of dollars' worth of debt in some of those shell companies with names you might remember like Chewco and Raptor. Lehman Brothers already settled for about 222 million; Bank of America for 69 million. So this 2 billion from Citigroup is way beyond that, but it's still short of the 2 1/2 billion that the bank paid to settle charges around the WorldCom collapse.

BRAND: And who gets this huge payout?

VIGELAND: Theoretically, the investors in the class-action lawsuit, but of course, a good chunk will go to lawyers. The rest will be divided among shareholders. Anyone who owned Enron stock between September 9th, 1997, and December 2nd, 2001--that, of course, when the company declared bankruptcy. And Citigroup says it's going to be able to cover this expense out of existing reserves that it has set aside for lawsuits, and that reserve's been tapped a lot the last couple of years 'cause the bank also agreed to settlements in the mutual fund scandal and the investigation into stock research on Wall Street.

BRAND: And, Tess, when are Enron's top executives going to trial?

VIGELAND: Well, we've had several dates actually set for that, but at this point, Ken Lay and Jeff Skilling have a court date next January.

BRAND: And, Tess, you mentioned the mutual fund scandal. I just want to ask you quickly about a jury verdict yesterday--a mutual fund broker who was the first to go on trial in New York Attorney General Eliot Spitzer's investigation, and he was found not guilty.

VIGELAND: That's right. This is Theodore Sihpol, and he was a broker with Bank of America, and he was charged with 29 counts ranging from grand larceny to fraud. Prosecutors said that he conducted illegal mutual fund trades after the markets closed. But the defense argued there's no actual law against that. Yesterday the jury agreed; acquitted him on all 29 counts. And really the significance here is that this is the first big defeat for Eliot Spitzer in all these corporate fraud cases that he's brought, you know, the last few years. He's gotten a lot of corporate settlements, but this was the first real court case, and, as I said, the jury acquitted.

And, Madeleine, today on "Marketplace," we'll have more on the Citigroup settlement.

BRAND: Tess Vigeland of public radio's daily business show, "Marketplace." And "Marketplace" is produced by American Public Media.

Thanks, Tess.

VIGELAND: Thank you, Madeleine.

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