The suit, brought by Bank of New York Co on Monday in New York State Supreme Court on behalf of numerous investors in Enron-related securities, is the latest in a spate of actions aimed at recovering billions of dollars lost when the Houston-based company collapsed into bankruptcy in 2001.
Plaintiffs include well-known distressed debt funds Angelo Gordon & Co and Appaloosa Investment LP, who charged in the 77-page complaint that Citigroup concocted a fraudulent scheme to raise billions of dollars from the sale of notes called "Yosemite" securities.
Citigroup, the investors said, then used the funds to make "disguised" loans to Enron "to reduce its own Enron credit risk, prop up Enron, cover up Enron's failing financial condition and generate significant fees in the process."
The complaint alleges fraud, breach of contract and fiduciary duty, and negligence in the Yosemite transactions, which it said took place between 1999 and 2001. Enron sought Chapter 11 bankruptcy protection on December 2, 2001.
"As Citibank well knew, Enron's rapid growth during the 1990s was largely fictional," the suit declared. "Enron's actual operating cash flow was just a fraction of, and its actual debt levels vastly higher than, the figures it reported publicly."
A Citigroup spokeswoman denied any improprieties by the New York-based global bank. "The purchasers of these notes are among the largest and most sophisticated financial institutions in the world, and we complied fully with all our obligations in dealing with them," the spokeswoman said.
Citigroup shares were recently trading at $46.45, up 15 cents, on the New York Stock Exchange.
Bank of New York spokesman Jeep Bryant said the bank filed the lawsuit because "as trustee, we have a responsibility to act at the direction of the investors." He said the bank has no financial interest in the Yosemite securities and the lawsuit will not affect its financial results.