On the heels of Citigroup’s settlement last week, J.P. Morgan Chase & Co. elected to avoid the risk of being placed in the “last to settle” position that it found itself in the WorldCom class action securities fraud litigation and agreed to pay about $2.2 billion to settle claims against the firm in the Enron securities fraud class action.
The Enron securities fraud class action accuses a group of Wall Street banks and securities firms of misleading investors by facilitating Enron transactions that removed billions of dollars of debt that allegedly should have been reported on the firm’s public financial statements. The lawsuit specifically claimed JP Morgan underwrote Enron securities, lent more than $1 billion to the company, and syndicated more than $4 billion of bank loans for Enron while the bank’s analysts were issuing allegedly false positive reports about the company.
Combined with the Citigroup settlement and previous settlements of lesser amounts (here, here and here), the JP Morgan settlement pushes the total amount of settlements in the Enron class action over $5 billion and ever closer to the $6 billion standard that the settlements in the WorldCom class action established.
JP Morgan’s settlement is not surprising given what happened in the WorldCom litigation, in which the firm and its counsel were heavily criticized by analysts and investors for waiting until the courthouse steps to settle. JP Morgan settled that case for $2 billion, but that was reportedly $630 million more than it would have had to pay had the firm settled earlier.
The Citigroup and JP Morgan settlements ups the price of poker on the remaining institutional defendants in the Enron class action, which include Merrill Lynch & Co., Credit Suisse Group’s Credit Suisse First Boston, Barclays PLC, Toronto-Dominion Bank, Royal Bank of Canada, Royal Bank of Scotland Group PLC and Goldman Sachs Group Inc. Plaintiffs counsel in the litigation has publicly stated that they are seeking $40 billion in damages in the case, but the pace and size of settlements indicates that the total amount recovered will be far south of that amount. Nevertheless, the total amount of settlements will certainly be higher than the WorldCom settlement total and, thus, will establish a new record for the highest amount recovered in a U.S. securities fraud class action against financial institutions.