Merrill to Pay $29.5 Million to Enron Creditors

Merrill Lynch (MER) will pay $29.5 million to settle claims arising from the Enron bankruptcy proceeding.

But the Wall Street firm is still looking at a much bigger payout down the road to settle allegations stemming from a class-action complaint filed by shareholders of the fallen energy trading firm.

Merrill Lynch says it will include the cost of the settlement in its second-quarter earnings. The investment firm is expected to announce earnings sometime in the next two weeks.

The settlement in the bankruptcy proceeding does not include any admission of wrongdoing by Merrill Lynch. That's important because the firm is still fending claims from Enron's shareholders that Merrill Lynch's investment bankers helped perpetuate the massive accounting fraud that led to the collapse of Enron.

To date, the Enron shareholders have collected nearly $7 billion from the Wall Street banks, accountants and lawyers that allegedly abetted the massive accounting fraud that led to Enron's spectacular collapse in 2001. The biggest payout has come from Canadian Imperial Bank of Commerce (BCM), which agreed to a $2.4 billion settlement last August. In earlier settlements, Citigroup (C) and JPMorgan Chase (JPM) shelled out $2 billion and $2.2 billion, respectively.

The shareholder lawsuit is scheduled to go to trial in the next few months against the remaining defendants, which includes Merrill, Credit Suisse (CSR) and Deutsche Bank (DB). It's doubtful Merrill will get off as cheaply in a settlement with the shareholders as it did in the bankruptcy case.

In 2003, the Wall Street giant paid an $80 million fine to the Securities and Exchange Commission to settle allegations that it arranged a series of transactions that enabled Enron to inflate its earnings. In 2004, a Texas federal jury convicted four former Merrill investment bankers on criminal charges arising from those transactions. The bankers are appealing the conviction.

Michael Mayo, a Prudential equity analyst, predicts Merrill will pay between $200 million and $1 billion to settle the shareholder suit.