Merrill, SEC Agree On Enron Settlement
Tentative Pact Calls for $80 Million Payment
By Carrie Johnson and Peter Behr
Washington Post Staff Writers
Friday, February 21, 2003; Page E01
Merrill Lynch & Co. said yesterday
that it has reached a tentative $80
million settlement with the
Securities and Exchange
Commission over two financing
deals it struck with Enron Corp. in
the 1990s.
The settlement, which still needs
the approval of the SEC
commissioners, covers only the
company and not current or former
Merrill employees who worked
closely with Enron executives to
craft the transactions.
Merrill did not identify the deals in
a filing with regulators, but sources
said they involved its purchase of
three energy-generating Nigerian
barges and a separate energy trade
between the company and Enron in
late 1999.
In a criminal complaint filed last
year against the company's chief
financial officer, Andrew S. Fastow,
prosecutors called the Nigerian
barge deal a "sham transaction"
that helped Enron to "manufacture
earnings."
The Merrill settlement is the latest
in a series of problems for Enron's
major bankers, which also include
J.P. Morgan Chase & Co. and
Citigroup Inc. Their relationships
with Enron have been battered in
congressional hearings and are the
target of shareholder lawsuits
seeking billions of dollars in
damages.
By reaching an agreement with the
SEC, Merrill avoids the release of
findings by the agency that could be used against it in the court cases filed by
investors, experts said. The company neither admitted nor denied wrongdoing
in the SEC settlement, its filing said.
"We entered into this agreement to put this matter behind us," said William
Halldin, a Merrill spokesman. The SEC declined comment other than saying
that no date has been set for a commissioners' vote on the settlement.
Merrill agreed to pay more than $100 million last year to settle allegations
lodged by New York Attorney General Eliot L. Spitzer that the firm's analysts
issued tainted research guidance to investors. At least one of its employees
remains under scrutiny by federal prosecutors in New York over his role in
possible insider trading of ImClone Systems Inc. stock by Martha Stewart.
A source at J.P. Morgan Chase pointed out that none of the billions of dollars
in deals that Chase arranged for Enron and its partnerships has been
mentioned in criminal proceedings. Manhattan District Attorney Robert M.
Morgenthau has convened a grand jury to examine Chase's dealings with
Enron.
Citigroup declined to comment. So did a spokesman for the University of
California, which is leading a federal lawsuit against banks and law firms that
it alleges helped Enron inflates its books to boost its stock price.
Merrill said earlier in public filings that the company is not the subject of a
criminal investigation. Sources familiar with a Justice Department probe have
said individual employees could be targeted.
Lawyers for Robert Furst and Schuyler Tilney, former Merrill executives who
worked closely with Enron officials on the deals covered by the proposed SEC
settlement, did not return calls. Furst and Tilney invoked their Fifth
Amendment rights against self incrimination at a congressional hearing last
July.
In one deal, Merrill paid $7 million for barges that helped Enron to book a $12
million gain in 1999. A Senate Governmental Affairs subcommittee called the
transaction into question last year, saying Enron executives had agreed to take
the barges off Merrill's hands, transforming the deal into a sham because
Merrill never faced any risk. In handwritten notes obtained by congressional
investigators, one Merrill official questioned the deal, asking whether the firm
was helping to "aid/abet Enron income [statement] manipulation."
At the time of the deal, Merrill was under pressure from Fastow and other
Enron executives to fund transactions or lose out on lucrative investment
banking fees, congressional investigators found.
The barges were ultimately repurchased, not by Enron, but by the LJM
partnership Fastow ran. The purchase allowed Enron to make good on its
commitment without having to reverse the sale and wipe out the profit it
claims, the Justice Department alleged in the Fastow indictment.
In a second deal, Merrill purchased $8 million in forward energy contracts
from Enron, a transaction that allowed Enron to meet financial targets in
1999. The deal was canceled the following year.
G. Kelly Martin, a Merrill senior vice president at the time, said last summer at
the Senate hearing: "Had we known at the time what we know today, we would
not have conducted business with Enron."
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