J.P. Morgan Chase & Co. and Toronto-Dominion Bank will pay Enron a total of $480 million to settle allegations that they helped the once-mighty energy giant hide debt and inflate earnings.
The settlement stems from a lawsuit filed by Enron against 10 banks. The suit contends the banks could have prevented the company's 2001 collapse if they hadn't “aided and abetted fraud,” the Houston Chronicle reported.
J.P. Morgan will pay Enron $350 million in cash and drop $660 million in claims against the company. Toronto-Dominion will also pay cash – $70 million with another $60 million for claims against Enron that the bank sold to other investors, Bloomberg News reported. The settlement money will go to creditors.
All told, the Enron debacle has cost J.P. Morgan $3.2 billion, which includes the $2.2 billion settlement reached two months ago with Enron shareholders. Enron has reached agreements with five banks, – J.P. Morgan is Enron's largest creditor. The Tuesday agreement reduced J.P. Morgan's claims – or Enron debt held by the bank – to $1 billion from about $2.9 billion, Enron Chairman John J. Ray III told Bloomberg.
Still negotiating claims that they helped Enron participate in fraud are Citigroup Inc., Deutsche Bank AG and Merrill Lynch & Co. Barclays PLC and Credit Suisse Group are also working with Enron to settle bankruptcy-related claims.
Enron is now liquidating what remains of the company for distribution to creditors. The so-called “MegaClaims” litigation has collected about $735 million in cash settlements, the Houston Chronicle reported.
"Today's settlement is a tremendous financial outcome for the Enron estate," Stephen Cooper, Enron's interim CEO and chief restructuring officer, said in a statement. "We are encouraged by the momentum of the recent MegaClaims settlements and look forward to working with the remaining financial institutions to get these issues behind us."