A lawsuit filed by Enron Corporation claims that the North Carolina-based Bank of America is holding millions of US dollars as security for letters of credit (L/Cs) issued to other parties on the collapsed energy giant's behalf.

The claim is one part of a lawsuit filed in a New York bankruptcy court that argues that Bank of America acted improperly by seizing a total of US$123 million from Enron's account just three business days before the company filed for bankruptcy.

Preferred status

The lawsuit says Bank of America is holding US$80 million as security for 11 L/Cs issued to other parties on Enron's behalf. It also claims the bank applied a further US$43 million against Enron debt held by Bank of America.

Enron claims in the lawsuit that it had sought to transfer the funds to Citibank - which reckons to be owed more than US$2 billion by the failed company - but when on 28 November 2002 the Bank of America withdrew the money, it accorded itself preferred status over the thousands of other creditors owed billions of dollars by Enron. It filed bankruptcy 2 December 2002.

Bank will fight

The lawsuit holds no punches. "Bank of America engaged in malicious and inequitable conduct and took grossly unfair advantage of Enron to benefit itself at the expense of Enron's other creditors," it says.

Enron is seeking return of the money, plus interest, punitive damages, attorney fees and a downgrading of the bank's standing in the bankruptcy proceedings.

Bank of America looks set to fight the lawsuit. Spokeswoman Shirley Norton is reported to have said that bank officials disagree with the allegations. "We acted properly," she claims and says the bank "will defend against this action vigorously."

Under fire

Bank of America is believed to have been the first bank to take action against employees apparently connected with Enron's accounts when in January 2002 it fired two senior executives. The bank is also one of nine named in a class action filed by Enron shareholders who contend the banks collaborated with the company in a scheme to conceal billions of dollars in debt.

The lawsuit filed against the Bank of America is the largest adversary proceeding Enron has filed since it sued Dynegy for US$10 billion for terminating a proposed merger. The two companies subsequently agreed a US$25 million settlement.

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