Re: Anyone seen this?
"Senior Citigroup credit officers misrepresented '99 transaction in records of deal; Enron could ignore accounting requirements and hide true financial condition, the NY TIMES is planning to report on Tuesday"
There was an article in today's WSJ:
PAGE ONE
QUESTIONS OVER ENRON
Citigroup Deals Helped Enron
To Disguise Its Debts as Trades
By JATHON SAPSFORD and PAUL BECKETT
Staff Reporters of THE WALL STREET JOURNAL
Citigroup Inc. arranged an unusual financing technique for Enron Corp. that enabled the energy trader to appear rich in cash rather than saddled with debt, according to internal documents of both companies.
Details of the controversial arrangement are only now coming to light as Congress turns to probing the role played by Enron's banks in enabling its illusory growth.
In a series of deals known as Yosemite, the documents show, Citigroup's complex scheme helped Enron borrow money over the past three years that was booked as coming from trades instead of loans. The deals, involving bond offerings and trades with an offshore entity, helped boost the company's weak cash flow to match its growth in paper profits, at a time when the gap between the two had grown to as much as $1 billion a year, according to one Enron memo.
HOW FINANCING BECOMES TRADES
Documents show Citigroup's complex Yosemite transaction allowed Enron to disguise financing as trades to avoid booking it as debt. Here's how the money flowed:
1. Investors buy roughly $800 million in bonds issued by Yosemite.
2. Yosemite gives $800 million to Delta, a Citigroup-controlled, special-purpose entity in the Cayman Islands.
3. Delta starts a circular transaction, which gives $800 million first to Enron, then to Citigroup, then back to Delta. Oil is then scheduled to flow in the opposite direction, from Enron to Delta to Citigroup then back to Enron. The transactions effectively cancel each other out.
4. Delta then returns the $800 million to Yosemite.
5. Enron affiliate gives money to Yosemite through a "magic note," assuring Yosemite's investors get 8.25% in interest.
Sources: Enron documents; U.S. Senate Permanent Subcommittee on Special Investigations
Investigators want to determine whether Enron would have been able to defraud investors if not for the willing participation of Wall Street. The documents amount to the most in-depth evidence yet of the extent to which Citigroup, the nation's largest financial institution, helped Enron disguise debt on its balance sheet through some of the most complex financial accounting arrangements at the Houston energy company. |
