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Enron Creditors Recovery Corporation’s $1.7 billion settlement with Citigroup ends
Bates White’s involvement in the Enron “MegaClaims” litigation proceedings
WASHINGTON DC, June 3, 2008—On April 4, 2008, Enron Creditors Recovery Corp. (Enron) reached a
multibillion dollar agreement with Citigroup, Inc., the final defendant to settle in the Enron
“MegaClaims” litigation regarding the role of multiple banks in Enron’s 2001 collapse.
Under the terms of the settlement, Citigroup paid Enron Creditors Recovery Corp. $1.66 billion. Citigroup
further agreed that indemnification claims (as to which the Bankruptcy Court established a $4 billion claim
reserve) and an additional $249.4 million of claims against the Enron Estate held by Citi would be waived.
Dr. B. Douglas Bernheim, Edward Ames Edmonds Professor of
Economics at Stanford University and Bates White Partner, served as the causation and damages expert on
behalf of Enron and its unsecured creditors.
Dr. Bernheim, supported by Bates White staff, submitted two expert reports and provided deposition testimony
on the role that Enron’s structured finance transactions played in masking the financial health of
Enron. Dr. Bernheim developed econometric models that quantified the impact of alleged financial and
accounting fraud on the bankrupt energy company’s credit rating. He also estimated the damages that
should be attributed to the defendants’ alleged involvement in aiding and abetting the fraud and breach
of fiduciary duty committed by the Enron insiders.
The analyses showed that had it not been for the defendants’ complicit transactions, the Enron
situation would have been resolved two and half years earlier than it was. At that point, and in the absence
of financial fraud, Enron’s creditors would have suffered significantly fewer, if any, losses. Bates
White’s analyses established that the masking of Enron’s financial health for at least two and a
half years allowed the losses of the company and its creditors to grow by $16 billion. Bates White also
demonstrated that the growth of creditors’ losses was foreseeable from the standpoint of the
participants in the alleged fraud.
Working under Dr. Bernheim’s close supervision, Bates White built sophisticated econometric models to
predict how and when, in the absence of alleged financial fraud, the credit rating agencies would likely have
reacted to a more accurate representation of Enron’s financial health. Bates White’s methodology
provided a common and consistent basis for measuring the causal contribution of each of almost 100 separate
transactions—and ultimately of each defendant—to the harm suffered by the company and its
creditors. Bates White’s efforts also included a thorough analysis of Enron’s massive derivatives
trading book. This analysis accounted for the key drivers of the value of Enron’s trading positions in
bankruptcy. Furthermore, as part of the equitable subordination proceedings against the defendants, Bates
White developed a methodology to estimate the resolution values of Enron’s assets and obligations for
each of the 180 Enron debtor entities.
About Bates White
Bates White LLC is a consulting firm offering services in economics, finance,
and business strategy to leading law firms, Fortune 500 companies, and government agencies.
We provide our clients with a unique combination of quantitative and analytical expertise
and an understanding of business issues across a range of industries.
Bates White has offices in Washington, DC and San Diego, CA.
For more information, visit: www.bateswhite.com
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