Investment bank JP Morgan Chase has suffered a severe blow after 11 insurance companies refused to honour $965m (£678m) in bonds related to the Enron failure.
According to reports, US district judge Jed Rakoff sided with the insurance firms, which claim the oil and gas contracts against which they issued the surety bonds masked straightforward loans. The contracts were between Enron and Mahonia, a JP Morgan affiliate.
Judge Rakoff said the insurers had provided enough evidence that the bonds "were the product" of fraud by the second-largest bank in the US, to deny JP Morgan immediate payment.
"These arrangements now appear to be nothing but a disguised loan - or at least have sufficient (indications) thereof that the court could not possibly grant summary judgment to the plaintiff," he said.
A JP Morgan spokesman said that the insurers had made a "commitment, and it was a commitment not kept" and said the bank expected to "prevail on the merits" of its arguments. A trail has been set for December 2.
