Risk & Compliance

Lehman Nears Settlement of Enron Suit

Involvement of investment bank is reportedly limited to its underwriting of at least three debt issues of the infamous energy company.
Stephen TaubSeptember 27, 2004

Lehman Brothers Holdings Inc. is close to an agreement to pay $222.5 million to settle a class-action lawsuit filed by Enron Corp. shareholders, according to published reports.

The lawsuit singled out Lehman’s involvement in the underwriting of at least three Enron debt issues, beginning in 1998, according to Bloomberg, which noted that Lehman wasn’t accused of helping Enron executives manipulate the company’s finances to defraud investors. Rather, the firm’s potential liability is limited to the securities it underwrote, the wire service reported.

For the deal to become official, both Lehman’s board of directors and the University of California Board of Regents, the lead shareholder in the case, must give their approval, according to Bloomberg. The investment banker won’t admit wrongdoing under the terms of the proposed agreement and, according to Bloomberg.

The company also reportedly said that there’s “no assurance” that a settlement would be reached on terms acceptable to Lehman and that the terms being discussed wouldn’t result in a charge to its income statement

The firm’s role, in any case, was much smaller compared with that of Citigroup Inc. and J.P. Morgan Chase & Co., which have put billions of dollars in reserve to cover against possible exposure, according to The Wall Street Journal.

If the Lehman settlement does become official, it would bring the total amount of money that the California regents can collect to $334.5 million. In July, Bank of America Corp., which also underwrote some Enron debt, agreed to pay $69 million to settle the investor suit. The foreign affiliates of Arthur Andersen LLP, Enron’s former auditor, settled their part of the suit for $40 million, according to Bloomberg.

Meanwhile, four former Merrill Lynch executives are currently on trial in Houston for their roles in an allegedly fraudulent barge deal involving Enron and Merrill.

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