SEC, Manhattan District Attorney Probing Banks' Dealings With Enron
J.P. Morgan Chase & Co. and Citigroup Inc. are moving closer to settling probes by the Securities and Exchange Commission and the Manhattan district attorney's office over how they helped Enron Corp. conceal billions of dollars in debt, according to people familiar with the talks.
The banks opened up a rich source of funds for the Houston energy trader, and collected steep fees in return, by financing "prepays" -- where companies are paid to deliver products, such as oil, at a later date. Enron increased its revenue more than $8.5 billion by using prepays in the six years before its collapse into bankruptcy. Regulators say the deals should have been treated as loans.
Enron's use of prepays was at the center of hearings by the Senate Governmental Affairs' Permanent Subcommittee on Investigations last summer. The SEC and Manhattan District Attorney Robert M. Morgenthau also opened investigations into the practice.
"There's no question that those prepays were a key element in Enron presenting a very false financial picture to the public," said Gary M. Brown, a former congressional investigator now practicing securities law in Nashville.
J.P. Morgan and Citigroup have been negotiating with regulators for months. Todd S. Thomson, Citigroup's chief financial officer, told the Financial Times on Monday that he expected a deal to be reached by the end of this quarter. Separately, the Wall Street Journal reported yesterday that J.P. Morgan was close to settling civil allegations against it for some $175 million.
Criminal charges against the banks and their current and former executives are unlikely, they added.
Spokeswomen for both banks declined to comment, as did Barbara Thompson, a spokeswoman for Morgenthau. An SEC spokesman did not return calls.
"The settlements with J.P. Morgan Chase and Citigroup need to send a clear and strong message -- clear in condemning the banks' deceptive conduct with Enron and strong enough to deter others from similar deceptions," said Sen. Carl M. Levin (D-Mich.), who initiated the congressional investigation of prepays. "At a minimum, payments required by the settlements ought to exceed the money made by Chase and Citigroup from agreeing to deceptive transactions with Enron."
Enron paid Citigroup $167 million between 1997 and 2001, according to congressional testimony from last July. The total fees paid to J.P. Morgan was not available yesterday.
Merrill Lynch & Co. agreed in March to pay the SEC $80 million to settle civil charges over separate energy deals it made to help Enron reach earnings targets. The agency also brought civil charges against four former high-level Merrill executives for allegedly aiding and abetting securities fraud.
J.P. Morgan Chase & Co. and Citigroup Inc. are moving closer to settling probes by the Securities and Exchange Commission and the Manhattan district attorney's office over how they helped Enron Corp. conceal billions of dollars in debt, according to people familiar with the talks.
The banks opened up a rich source of funds for the Houston energy trader, and collected steep fees in return, by financing "prepays" -- where companies are paid to deliver products, such as oil, at a later date. Enron increased its revenue more than $8.5 billion by using prepays in the six years before its collapse into bankruptcy. Regulators say the deals should have been treated as loans.
Enron's use of prepays was at the center of hearings by the Senate Governmental Affairs' Permanent Subcommittee on Investigations last summer. The SEC and Manhattan District Attorney Robert M. Morgenthau also opened investigations into the practice.
"There's no question that those prepays were a key element in Enron presenting a very false financial picture to the public," said Gary M. Brown, a former congressional investigator now practicing securities law in Nashville.
J.P. Morgan and Citigroup have been negotiating with regulators for months. Todd S. Thomson, Citigroup's chief financial officer, told the Financial Times on Monday that he expected a deal to be reached by the end of this quarter. Separately, the Wall Street Journal reported yesterday that J.P. Morgan was close to settling civil allegations against it for some $175 million.
Criminal charges against the banks and their current and former executives are unlikely, they added.
Spokeswomen for both banks declined to comment, as did Barbara Thompson, a spokeswoman for Morgenthau. An SEC spokesman did not return calls.
"The settlements with J.P. Morgan Chase and Citigroup need to send a clear and strong message -- clear in condemning the banks' deceptive conduct with Enron and strong enough to deter others from similar deceptions," said Sen. Carl M. Levin (D-Mich.), who initiated the congressional investigation of prepays. "At a minimum, payments required by the settlements ought to exceed the money made by Chase and Citigroup from agreeing to deceptive transactions with Enron."
Enron paid Citigroup $167 million between 1997 and 2001, according to congressional testimony from last July. The total fees paid to J.P. Morgan was not available yesterday.
Merrill Lynch & Co. agreed in March to pay the SEC $80 million to settle civil charges over separate energy deals it made to help Enron reach earnings targets. The agency also brought civil charges against four former high-level Merrill executives for allegedly aiding and abetting securities fraud.
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