Citigroup, J.P. Morgan to pay $236 million for Enron fraud

NEW YORK -- J.P. Morgan Chase and Citigroup reached settlements with the federal government Monday for their roles in the manipulation of Enron's finances, agreeing to pay $236 million that will go to victims of the energy trader's massive fraud.

The payments settle civil charges that J.P. Morgan and Citigroup helped Enron mislead investors by creating complex transactions that made its financial condition appear sound when the company was actually drowning in debt.

The Securities and Exchange Commission contends the banking giants knew Enron was seeking the transactions specifically to improve its bottom line.

"If you know or have reason to know that you are helping a company mislead its investors, you are in violation of the federal securities laws," SEC enforcement chief Stephen Cutler said.

Enron plunged into bankruptcy in 2001 after large accounting irregularities were revealed -- the first in a string of scandals that have tainted corporate America. Enron's collapse destroyed the retirement savings of thousands of employees and damaged outside investors and pension funds nationwide.

Under Monday's deals, J.P. Morgan will pay $135 million to the SEC and Citigroup will pay $101 million. All of that money will eventually be used to pay back the victims of Enron's fraud, the SEC said.

The payments represent just a tiny fraction of the banks' worth. J.P. Morgan reported earnings of $1.83 billion for the most recent quarter, while Citigroup earned $4.3 billion.

The settlements come four months after another U.S. banking titan, Merrill Lynch & Co., agreed to pay $80 million to settle charges it helped Enron inflate profits and deceive investors.

Cutler said J.P. Morgan and Citigroup's payments had already been wired from the banks to a court-supervised account. He gave no timetable for when the money would be doled out to investors.

For legal purposes, J.P. Morgan and Citigroup neither admit nor deny the SEC charges under the settlements. Cutler stressed the SEC had not closed its investigation into Enron and other companies with which it did business.

The banks will also pay a total of $50 million to New York state and New York City to settle similar Enron charges, plus $3 million more to reimburse expenses by the office of Manhattan District Attorney Robert Morgenthau.

In exchange, Morgenthau said he would not pursue charges against the banks or their employees.

Both banks expressed relief that the investigations have come to a close.

"We have made mistakes," J.P. Morgan vice chairman Marc Shapiro wrote in a letter to Morgenthau. "We cannot undo what has been done, but we can express genuine regret and learn from the past."

"We are committed to assuring compliance and continually scrutinizing our practices in order to adhere to the highest standards as our business evolves," said Charles Prince, head of corporate and investment banking for Citigroup.

J.P. Morgan and Citigroup are among 11 banks and brokerages negotiating a possible settlement with plaintiffs in a conglomerate of shareholder lawsuits in Houston seeking at least $25 billion.

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On the Net:

J.P. Morgan Chase & Co.: http://www.jpmorgan.com

Citigroup Inc.: http://www.citigroup.com

Securities and Exchange Commission: http://www.sec.gov

are among 11 banks and brokerages negotiating a possible settlement with plaintiffs in a conglomerate of shareholder lawsuits in Houston seeking at least $25 billion.

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On the Net:

J.P. Morgan Chase & Co.: http://www.jpmorgan.com

Citigroup Inc.: http://www.citigroup.com

Securities and Exchange Commission: http://www.sec.gov