Risk & Compliance

Enron Settles with Lehman

Energy company is pursuing similar claims against Bear Stearns, Credit Suisse, and UBS.
Stephen TaubFebruary 3, 2006

Examine our Enron archive.

Lehman Holdings has agreed to pay Enron Corp. $69.9 million to settle charges that the investment bank improperly received certain payments from Enron before the energy company went bankrupt, according to Reuters.

Under the deal, Lehman agreed to permanently withdraw its $173 million claim against Enron, according to the wire service, citing Enron. Enron is still pursuing similar claims against Bear Stearns Cos., Credit Suisse, and UBS.

Lehman spokeswoman Carrie Cohen confirmed the deal, but declined further comment, reported the Associated Press. A spokesperson for Credit Suisse and UBS also declined to comment, while Bear Stearns did not return a call seeking comment, noted Reuters.

The settlement is unrelated to the federal trial currently taking place against former top executives Kenneth Lay and Jeff Skilling.

Enron filed the lawsuit in 2003 based on equity forward transactions it entered into with Lehman. Some companies use these arrangements to repurchase shares they will eventually need when employees exercise stock options in the future, explained Reuters.

The transactions began in November 2000, long before Enron’s financial problems were publicly apparent. However, as its stock price started to tumble, the energy company charged that Lehman renegotiated the terms in a way that was increasingly favorable to the investment bank, according to the Reuters report.

In November 2001 — one month before Enron filed for bankruptcy — Lehman sold 2.4 million shares to Enron for $5 million and an agreement to pay $173.5 million in the future.

Enron officials asserted that these transactions were not authorized, according to Reuters. Altogether, Enron claimed that it made $235.3 million of improper payments to Lehman in January and November 2001, according to the report.

“An insolvent company — in this case, Enron — is not allowed to make payments to stockholders,” Enron spokesman Harlan Loeb told the AP. In addition, Reuters reported that these equity forward transactions were popular when the stock market was booming in the 1990s, but waned once the stock market collapsed.

“We are pleased with this settlement, the first we have reached in the equity transactions litigation,” John J. Ray III, Enron’s president and board chairman, said in a statement, according to the AP. “We look forward to successfully resolving the remaining equity transactions cases.”

The settlement still must be approved by the U.S Bankruptcy Court for the Southern District of New York.