At the time of Enron's bankruptcy, Citigroup held billions of dollars worth of debt, or claims, related to its financial dealings with Enron. On March 5, 2002, Citigroup transferred two of its claims, with a total value of $50 million, to Westpac Banking Corporation ("Westpac"). This transfer was the result of an existing agreement between Citigroup and Westpac in which both companies agreed that if Enron filed for bankruptcy, Westpac would pay Citigroup $50 million in cash in exchange for $50 million worth of Citigroup's claims against Enron. This type of agreement is known as a credit-default swap.

Westpac now seeks payment from Enron Creditors Recovery Corp. on the claims it received from Citigroup as part of the agreement. At issue in the lawsuit is the status of claims transferred after the date of the bankruptcy filing, where the transferor (Citigroup, in this case) participated in bad acts, or fraudulent conduct, which contributed to the financial demise that led to the bankruptcy. Enron Creditors Recovery Corp. argues that under bankruptcy law, these claims should not be viewed and paid in the same manner as claims held by innocent creditors.

Therefore, Enron Creditors Recovery Corp. asserts that claims held by Citigroup and then transferred post-bankruptcy must be subject to equitable subordination and disallowance, which are well-established remedies in the Bankruptcy Code designed to prohibit creditors who engage in wrongful conduct from sharing in the Bankruptcy Estate on an equal basis with innocent creditors.

To find otherwise would allow Citigroup (or any other party involved in fraudulent conduct) to "wash" a claim by simply transferring it to a third party, here Westpac, after the bankruptcy occurs. Such claim washing, if successful, would legitimize fraudulent maneuvering, transforming a tainted claim into one having the same validity and priority as claims held by innocent creditors.

Westpac has already filed suit against Citigroup alleging that, due to its conduct, Citigroup should be financially responsible for any amount Westpac does not recover from Enron. Specifically, Westpac says that Citigroup breached its guarantee regarding these claims, as it had promised that the claims would not be "tainted" by any of Citigroup's conduct. Furthermore, Westpac alleges that even if the claims are not tainted, the fact that these claim are now tied up in the litigation between Enron and Citigroup should be sufficient to compel Citigroup to pay Westpac.

Additionally, Westpac has filed a separate fraud suit against Citigroup on the basis that it concealed information it had regarding Enron's financial condition when Westpac and Citigroup were negotiating the swap agreement.