Canadian Imperial Bank of Commerce has agreed to pay $2.4 billion to resolve investors’ claims it helped hide losses at Enron Corp., marking the biggest individual settlement since the energy trader collapsed in a massive accounting fraud.
The settlement announced Tuesday with the Toronto-based bank — Canada’s fifth-largest financial institution and the operator of the securities firm CIBC World Markets — could help compensate investors who lost tens of billions of dollars when Enron failed in 2001.
Combined with similar agreements with Citigroup Inc. and JPMorgan Chase & Co. and others, the settlements have now reached more than $7 billion, said lawyers for the wronged investors.
Some 50,000 Enron stock and bond holders led by the University of California’s board of regents filed claims as part of the lawsuit. Investors claim a number of global banks and brokerages helped Houston-based Enron continue to operate and raise money even as the company was imploding.
“The settlement reflects the level of involvement from CIBC, and reflects the fact they waited for others to settle before them, and that reflects the settlement amount,” said William Lerach, the lawyer representing the University of California, which lost $144.7 million when Enron declared bankruptcy. “We can’t predict the future, but we’ve said all along that those that settle earlier will do better than those that didn’t come to the table at the appropriate time.”
The approximate damages subject to proof at trial are up to $47 billion, but Lerach has said the actual awards will be pennies on the dollar. A federal judge in Texas will determine a formula under which claimants would be paid. But investors might not see any funds for more than a year.
The CIBC settlement marks the seventh since investors filed numerous lawsuits over Enron’s collapse. Enron spokeswoman Jennifer Lowney declined to comment on the settlement, noting that the company is a party to the litigation.
In June, Citigroup agreed to pay $2 billion, followed days later by JPMorgan’s agreement to forfeit $2.2 billion. Those deals put pressure on remaining defendants such as CIBC to settle.
Before those agreements, there had been some $500 million of settlements reached with Lehman Brothers Holdings Inc., Bank of America Corp., Andersen Worldwide, Enron’s outside directors and Enron’s former vice chairman, Ken Harrison.
Enron investors are still seeking to hammer out agreements with a number of financial institutions, including heavy-hitters such as Barclays PLC, Credit Suisse First Boston, Merrill Lynch & Co., Toronto Dominion Bank, Royal Bank of Canada, Deutsche Bank AG and the Royal Bank of Scotland. Goldman Sachs & Co. also is named as a defendant for its role as an underwriter of Enron securities, as are a number of law firms and accountants.
Former Enron CEO Jeffrey Skilling is slated for trial in January with former Enron chairman Kenneth Lay and former chief accounting officer Richard Causey. All have pleaded not guilty.
The financial institutions allegedly helped Enron set up partnerships that the company used to improperly boost profits while moving billions of dollars of debt off its balance sheet. That allowed Enron to report higher cash flow from operations and lower debt, making its financial picture look better than it was and artificially inflating the company’s stock and bond prices, according to the lawsuit.
“A key priority for us is to resolve this case and substantially reduce our litigation risk,” said CIBC President and CEO Gerry McCaughey in a statement. “By settling this case and maintaining what we believe are adequate reserves for the remaining Enron related legal issues, we can better focus our energies on our other priorities.”
CIBC announced it will take a $2.3 billion pretax charge for the quarter that just ended to increase its litigation reserves due to the settlement. The company still faces a so-called “mega-claims” bankruptcy lawsuit, in which other financial firms have also been named.
In 2003, CIBC agreed to pay the Securities and Exchange Commission $80 million to settle an investigation into wrongdoing connected to Enron. The settlement consisted of $37.5 million in repayment of Enron-related gains, a $37.5 million penalty and $5 million in interest.
A number of top executives at the Canadian bank also agreed to settle charges they were personally involved in helping to mislead investors through a series of complex structured finance transactions.