Enron hid debt with banks' aid
Citigroup is named along with Morgan
By The Associated Press (The Associated Press)
Wednesday, July 24, 2002
WASHINGTON: Major investment banks gave Enron Corp. multimillion-dollar
loans that helped the company disguise its true financial condition and, in
some cases, they knew that Enron was using deceptive accounting for the
loans, a Senate investigator alleged Tuesday.
The investigative subcommittee of the Senate Governmental Affairs Committee
reviewed a million pages of documents, most of them subpoenaed, and
interviewed dozens of witnesses from Enron and its Wall Street investment
banks. It found some banks actively aided Enron in its dodgy accounting in
return for big fees and favors in other deals, the investigator, Robert Roach,
told a hearing before the panel.
"The evidence indicates that Enron would not have been able to engage in the
extent of the accounting deceptions it did, involving billions of dollars, were it
not for the active participation of major financial institutions willing to go along
with and even expand upon Enron's activities," Roach said.
The banks, including Citigroup Inc. and J.P. Morgan Chase Co., used complex
financial transactions to bolster Enron's anemic cash flow to match its profit
growth on paper, according to lawmakers. Enron recorded the money from the
bank loans - said to total $8 billion - as prepaid trades of natural gas and other
commodities with an entity based in the Channel Islands.
Roach said Citigroup and J.P. Morgan Chase had also pitched the deals to
other companies. Citigroup "shopped" the Enron-style deals to 14 companies,
successfully selling it to at least three, Roach testified. Enron, which filed for
bankruptcy in December, used a web of thousands of off-balance-sheet
partnerships to hide $1 billion in debt from investors and federal regulators.
Shares of Citigroup were down $4.64 at $27.40 in late trading, after falling 11
percent Monday, while shares of J.P. Morgan were down $3.37 at $21.15,
adding to a 6 percent decline Monday.
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