x-Merrill Bankers Charged in Enron Case
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By C. Bryson Hull
HOUSTON (Reuters) - Three former Merrill Lynch bankers pleaded not guilty on Wednesday to charges they conspired to help client Enron Corp. record a phony profit and pad its earnings with a loan disguised to look like a sale.
The three -- Robert Furst, Daniel Bayly and James Brown -- were involved in a transaction that helped Enron meet a 1999 profit target through a sham sale of three barges carrying generators and moored off the coast of Nigeria.
The men, accompanied by their lawyers, surrendered at the Houston office of the Federal Bureau of Investigation. They later appeared, wearing dark suits and handcuffs, before U.S. Magistrate Judge Marcia Crone, who freed them each on $100,000 bond after they pleaded not guilty.
All were charged with conspiring with Enron (Other OTC:ENRNQ - news) executives to commit wire fraud and falsify books and records, which carries a maximum sentence of five years in prison.
Brown was additionally charged with obstruction of justice and perjury for statements he made to a grand jury investigating Enron, for which he could face up to 15 more years in prison.
Lawyers for Bayly and Furst said their clients had been wrongfully accused and intended to fight the accusations at trial. Brown's lawyer declined to comment.
Brown was accused of telling the grand jury he knew nothing of Enron's oral promise, made by former Chief Financial Officer Andrew Fastow, to buy back the barges within six months at a 22 percent profit to Merrill.
SALE CALLED A LOAN
The buyback promise, prosecutors say, made the transaction a loan and, as such, it never should have been recorded on Enron's books as a sale.
That accusation forms one part of a separate 109-count indictment against Fastow, who was charged with conspiracy, fraud and money laundering in May for engineering the barge deal and other transactions. He has pleaded not guilty.
Furst, who was Merrill's relationship manager with Enron, resigned from the investment bank in 2001. Bayly, who retired last fall, was the head of Merrill's investment banking division.
According to a report from Enron bankruptcy examiner Neal Batson, Bayly ordered Brown, then a top banker in Merrill's project finance division, to close the deal after Fastow promised to buy the barges back. According to Batson, Brown raised repeated objections to the deal.
The discovery of widespread financial wrongdoing at Enron led the Houston energy giant to implode in a record bankruptcy in December 2001, with shock waves that rocked the financial world and led to an unprecedented crackdown on corporate corruption.
MERRILL CUTS DEAL
Merrill Lynch & Co. Inc. (NYSE:MER - news), which has said it acted properly in the barge deal, is not charged in the indictment.
But on Wednesday Merrill signed an agreement with the U.S. Justice Department (news - web sites) under which it will cooperate with the Enron investigation and establish oversight measures for transactions similar to the barges deal.
The bank also promised not to undertake transactions in the future to help clients manipulate earnings.
In March, Merrill paid $80 million to settle a U.S. Securities and Exchange Commission (news - web sites) civil complaint alleging stock fraud in the barge deal and another transaction with Enron. Merrill neither admitted nor denied wrongdoing.
The barge deal typified one of Enron's methods for meeting quarterly profit targets at the last minute. Enron needed to sell the barges -- which were not yet operational -- but by December 1999 had found no buyer.
In what prosecutors termed an "asset parking" scheme, Merrill agreed to "purchase" the barges for $28 million, with 75 percent of that amount fronted by Enron itself. The deal allowed Enron to record $12 million in earnings and $28 million in cash flow in the fourth quarter of 1999.
The indictment alleges that Merrill agreed to buy the barges only because it knew the "purchase" was truly a short-term loan. The big payback for Merrill was $775,000 in cash from Enron at the time of repurchase.
Enron and Merrill signed agreements on Dec. 29, 1999, that were designed to mask the full nature of the deal from auditors and regulators who might have questioned the accounting treatment, according to the indictment.
(Additional reporting by Deborah Charles in Washington) |
