SEC Charges Merrill in Enron Case
Reuters
biz.yahoo.com
By Kevin Drawbaugh
WASHINGTON (Reuters) - The U.S. Securities and Exchange Commission
on Monday charged Merrill Lynch and Co. (NYSE:MER -
News) and four of its former executives with securities fraud, accusing them of
helping Enron Corp. to pad its profits.
"Merrill Lynch and its former
executives aided and abetted
Enron Corp.'s earnings
manipulation by engaging in two
fraudulent year-end transactions
in 1999," the SEC said in a
22-page complaint filed in U.S.
District Court in Houston.
Merrill said it agreed to pay $80
million to settle the case, a
move that it said "concludes the
SEC's investigation into
Enron-related matters with
respect to the company."
Merrill, one of several Wall Street firms under scrutiny for their dealings with the
energy-trading group that collapsed in scandal in 2001, announced the
settlement in principle last month.
In a statement, the SEC said the four former Merrill executives named in the
complaint -- Robert Furst, Schuyler Tilney, Daniel Bayly and Thomas Davis --
"are contesting the matter."
At issue in the investigations were a deal between Enron and Merrill involving
power-generating barges in Nigeria and a series of trades involving Enron and
Merrill's energy trading division, which has since been sold.
Enron used the transactions to add about $60 million to its 1999 fourth-quarter
income and to increase its full-year 1999 earnings per share to $1.17 from
$1.09, the SEC said.
According to the SEC, Merrill bought an interest in the Nigerian barges from
Enron at the end of 1999 with the understanding that Enron would arrange for its
sale within six months at a specified rate of return.
"In substance, this transaction was, at best, a bridge loan because the risks and
rewards of ownership did not pass to Merrill Lynch," the commission said.
The other transaction involved energy trades that Merrill believed "were
essentially a wash" and that it "knew had the purpose and effect of inflating
Enron's income by approximately $50 million," the SEC said.
SEC Enforcement Division Director Stephen Cutler said the $80 million was
one of the five largest penalties ever imposed in a civil securities enforcement
action.
"Even if you don't have direct responsibility for a company's financial
statements, you cannot turn a blind eye when you have reason to know that what
you are doing will help make those statements false and misleading," Cutler
said in a statement.
Ira Sorkin, Furst's attorney, told Reuters, "We do not believe he did anything
improper or anything that violated federal securities laws, and we intend to
defend the action."
Tilney's attorney, Robert Trout, said, "Schuyler Tilney did not engage in any
wrongdoing. He is a person of great integrity and would never participate in a
fraudulent scheme."
Thomas Fitzpatrick, attorney for Davis, said his client "gave final approval to the
Nigerian barge transaction after it had been thoroughly vetted by legal counsel....
He did not aid Enron in fraudulently accounting for the transaction and he did not
even know how Enron booked the transaction."
Fitzpatrick said Davis "had no involvement in the energy trade and is not
charged concerning that transaction. He intends to vigorously defend the only
charge against him."
Bayly's attorney could not immediately be reached.
Merrill neither admitted nor denied wrongdoing. The firm said last month it would
also consent to an injunction barring it from violating federal securities laws
under the deal.
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