Citigroup Inc., the nation’s largest financial institution, announced this morning that it has agreed to pay $2 billion to settle class-action claims over its role in the sale of Enron Corp. stock and bonds prior to the company’s collapse into bankruptcy at the end of 2001. As this earlier post notes, Citigroup had set aside $6.7 billion to cover its litigation exposure relating primarily to claims against the bank in the Worldcom class action and the Enron class action.
As is typical in such deals, in announcing the settlement, Citigroup denied any wrongdoing and said it had agreed to settle solely to hedge the risk of a bigger claim being awarded in the litigation. The settlement must be approved by the Board of Regents of the University of California (the lead plaintiff in the case) and the Board of Directors of Citigroup. It is also subject to the approval of the U.S. District Court for the Southern District of Texas.
Citigroup is the first really large bank settlement in the Enron class action litigation. Other bank defendant include J.P. Morgan Chase & Co., Merrill Lynch & Co.; Credit Suisse First Boston, a unit of Credit Suisse Group; Deutsche Bank AG; Canadian Imperial Bank of Commerce; Barclays PLC (BCS); Toronto-Dominion Bank; and Royal Bank of Scotland PLC. My sense is that we will see a steady stream of settlements for the remainder of this year as the financial institutions strive to clean up the Enron liability on their financial statements before the end of the year and the plaintiffs’ lawyers attempt to exceed the total $6 billion in settlement proceeds from the defendants in the WorldCom class action.

The Sihpol acquittal yesterday focuses attention on an important aspect of the current wave of criminalizing merely questionable business transactions — that is, the government’s destruction of good reputations in its quest to obtain convictions and prevent juries from hearing testimony that is favorable to unpopular defendants.
In this excellent Chicago Tribune op-ed (free registration req.), David Hall — a former editor of the Cleveland Plain Dealer and Denver Post who covered Arthur Andersen as a Chicago reporter in the 1960s — decries the cultural climate and the lack of prosecutorial discretion that led to the destruction of Andersen:

Andersen’s head on the U.S. Justice Department’s dish, with unjust charges regarding Enron Corp. and the connivance of a slow-witted judge, is a parallel in today’s political-legal-news culture–blame quickly, accuse broadly and dare the accused to defend. Bloody heads on plates satisfy the evening news and pundits looking for the easy prey of righteousness.
The Justice Department, eager to demonstrate its conservative stance would not be cowed by big business, maliciously destroyed a fine American company, a contributor to orderly commerce for eight decades. Andersen stumbled amid the stampede of cliffside accounting in the ’90s, particularly regarding Sunbeam Corp. and Waste Management, but nothing deserved a judicial death sentence. . .
Many institutions, private and public, must feel under such siege, must fear the plow and the salt and the unjust destruction of Andersen. Every good-faith act should not be turned into an inquisition–by politicians polishing campaign ads, prosecutors primping for the boss, or reporters intent on bringing the first head on a dish.

Meanwhile, as the defense in the ongoing Enron Broadband trial proceeds with putting on their case, an interesting development is taking place. As the Chronicle’s Mary Flood reports, Lawrence Ciscon, a former Enron Broadband systems engineer, is testifying on behalf of his five former Enron Broadband colleagues despite the fact that prosecutors have told him that he is a target of the Enron criminal investigation and could be indicted himself.
Mr. Ciscon’s decision to testify brings into focus an abominable governmental tactic that ensures that the jury will never hear much of the favorable testimony for the defense. In both the Enron Broadband case and the earlier Nigerian Barge case, the prosecutors have identified dozens of former Enron executives as either targets of the Enron criminal investigation of unindicted co-conspirators of the defendants. As a result, the government has effectively prevented many witnesses with favorable testimony for the defendants in both the Broadband and Nigerian Barge cases from testifying because those witnesses would waive their Fifth Amendment privilege and probably face further perjury charges if they chose to tesfify contrary to the government’s position in those cases. Indeed, in the case against former Enron CEO Jeff Skilling, former Enron chairman Kenneth Lay, and former Enron chief accountant Richard Causey, the Enron Task force has identified 114 unindicted conspirators in an effort to chill as much favorable testimony for the defendants as possible.
Thus, the “Justice” Department is not really interested in “justice” at all, or even in having a jury fairly evaluate all evidence relating to its charges against unpopular business figures. Rather, our “Justice” Department is much more interested in indulging public bias against unpopular businessmen, regardless of the reputations of citizens that it destroys in the process. Something is seriously wrong with the administration of justice in America when it takes the uncommon courage of someone such as Lawrence Ciscon for a jury to hear favorable testimony for businessmen who are facing their government’s overwhelming power to imprison them for most of the rest of their lives.

As anticipated in this post from earlier this week, John Houldsworth, a former high-level executive of the Cologne Re Dublin unit of Berkshire Hathaway Inc.’s General Reinsurance Corp., implicated four other senior General Re executives while pleading guilty on Thursday in Alexandria, Va. to conspiring to commit securities fraud. Mr. Houldsworth is the the first person to be indicted from the various governmental investigations into finite risk insurance transactions between General Re and American International Group Inc. Here are the previous posts on the investigations into AIG and Berkshire.
According to the criminal complaint, Mr. Houldsworth, Ms. Monrad, Mr. Napier, and another unknown executive in late 2000 conspired to structure a reinsurance contract to allow AIG to pass its auditor’s “smell test” and to create a paper trail to make the transaction appear legitimate.
The other executives identified in a parallel SEC civil suit who are referred to by title in the the criminal complaint are former General Re CEO Ronald E. Ferguson, former CFO Elizabeth Monrad, current senior VP Richard Napier (who is expected to plead guilty to similar charges today), and Chris Garand, an underwriter in General Re’s international finite division. The complaint also cites another General Re “senior executive” whose identity is unknown to Mr. Houldsworth.