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Commentaries and editorials

Bank of America Settles Suit
Over the Collapse of Enron

by Rick Brooks and Carrick Mollenkamp
Wall Street Journal - July 6, 2004

Bank of America Corp. became the first bank to settle a class-action lawsuit alleging that some of the top U.S. financial institutions participated in a scheme with Enron Corp. executives to deceive shareholders.

The Charlotte, N.C., bank, the third-largest in the U.S. in assets, agreed to pay $69 million to investors who had billions of dollars in losses as a result of Enron's collapse amid scandal in 2001. In making the settlement, Bank of America denied that it "violated any law," adding that it decided to make the payment "solely to eliminate the uncertainties, expense and distraction of further protracted litigation," according to a statement.

The settlement with Bank of America raises the possibility that it could cost other banks and securities firms still embroiled in the suit much more to settle the allegations against them, should they decide to do so. Bank of America had relatively small-scale financial dealings with Enron compared with other banks, and was sued only for its role as an underwriter for certain Enron and Enron-related debt offerings.

In contrast with other financial institutions being pursued by Enron shareholders, led by the Regents of the University of California, which lost nearly $150 million from Enron, Bank of America wasn't accused of defrauding the energy company's shareholders. Other remaining defendants in the class-action suit, filed in 2002 in U.S. District Court in Houston, are alleged to have helped Enron with phony deals to inflate the energy company's earnings, potentially exposing those banks and securities firms to much steeper damages.

William Lerach, the lead attorney representing the University of California, predicted that the $69 million payment from Bank of America "will be the precursor of much larger ones in the future, especially with the banks that face liability for participating in the scheme to defraud Enron's common stockholders."

Citigroup Inc. and J.P. Morgan Chase & Co., still defendants in the suit, declined to comment. Enron shareholders also sued Merrill Lynch & Co., the Credit Suisse First Boston unit of Credit Suisse Group, Deutsche Bank AG, Canadian Imperial Bank of Commerce, Barclays PLC, Toronto-Dominion Bank; and Royal Bank of Scotland PLC. Named as defendants in the class-action suit before it was amended to include the banks and securities firms were several Enron officers and directors and its former outside auditor, Arthur Andersen LLP.

The only other firm to settle allegations against it in the suit is Andersen Worldwide SC, the Swiss organization that oversees Andersen Worldwide's independent partnerships. In 2002, it reached a $40 million deal with the University of California that released Andersen Worldwide from the suit. That agreement also raised questions among some other Enron claimants about whether they would recover anything more sizable from Enron's accounting firm.

Rick Brooks and Carrick Mollenkamp, Staff Reporter
Jathon Sapsford contributed to this article.
Bank of America Settles Suit over the Collapse of Enron
Wall Street Journal, July 6, 2004

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