Enron Sues Investment Banks, Brokerages
Thu Sep 25, 7:57 AM ET
story.news.yahoo.com
By KRISTEN HAYS, AP Business Writer
HOUSTON - Enron Corp. is suing a string of banks, brokerage firms
and their subsidiaries that financed its deals and partnerships, accusing
them of participating in deliberately murky transactions for millions of
dollars in fees that helped create the failed energy company's facade of
success.
Defendants in the lawsuit filed late
Wednesday in U.S. Bankruptcy Court in New
York include banking titans J.P. Morgan
Chase & Co. and Citigroup Inc., two of
Enron's largest creditors.
The two banks in July paid nearly $300 million
to settle regulatory allegations of helping the
company defraud investors by setting up
complex financial transactions that inflated
profits and hid debt.
Also among defendants is Merrill Lynch &
Co., which paid $80 million in March to settle
Securities and Exchange Commission (news
- web sites) allegations that it helped Enron
commit fraud. The firm avoided prosecution
last week by agreeing to cooperate with the
Justice Department (news - web sites)'s
Enron Task Force and implementing internal
reforms to prevent future dubious deals with
clients.
Other defendants include Canadian Imperial
Bank of Commerce, Deutsche Bank AG, and Barclays Bank PLC.
Various regulatory and criminal investigations have produced charges
that some Enron executives led the charge to cook Enron's books.
Enron's lawsuit alleges those insiders conspired with the banks to inflate
profits and hide debt while the banks pocketed millions of dollars in fees.
As a bankrupt company, Enron is required to try to recover as much as
it can for creditors.
Enron spokeswoman Karen Denne declined comment on the suit.
Enron's lead lawyer in the action, Lee Godfrey, didn't return a call for
comment from The Associated Press. The banks either declined
comment or didn't return calls for comment Wednesday night.
Neal Batson, the court-appointed bankruptcy examiner investigating
Enron's collapse, said in his most recent report issued in July, citing
numerous internal documents and e-mails, that the six parent banks
named in Enron's lawsuit knew some of the financing deals they did with
the company were intended to pump up profits.
He said their participation in questionable deals means they could be
liable for aiding and abetting fraud. Batson also said if a court finds they
participated in shady deals, their combined claims of more than $5
billion could be "subordinated," or bumped behind those of other
creditors in priority.
Enron's pursuit of banks with deep pockets is no surprise, said Mike
Alderson, a Saint Louis University finance professor.
"This puts the investment banks on both sides of the issue," he said.
"They are creditors who are owed, yet here they are seen as enabling
Enron's behavior and potentially being a source of recovery for other
creditors."
The lawsuit said that for the banks, the deals - often at year-end to help
meet earnings targets - "offered the irresistible temptation of enormous
fees and other revenues from equity and debt underwritings, traditional
financings, and other unusually lucrative transactions with Enron."
For insiders, the deals provided "unparalleled" compensation packages
and bonuses based upon falsified financial performance, the suit said.
The charges mirror those in a conglomerate of federal shareholder
lawsuits in Houston seeking at least $25 billion. Banks are negotiating a
settlement with plaintiffs for those cases with help from a mediator.
The lawsuit alleges the insiders include former Enron finance chief
Andrew Fastow, who faces nearly 100 charges of money laundering,
fraud, conspiracy and insider trading. He has pleaded innocent, is free
on bond and is slated for trial in April.
Former Enron treasurer Ben Glisan Jr. earlier this
month pleaded guilty to conspiracy, and former top
Fastow aide Michael Kopper, who pleaded guilty last
year to money laundering and conspiracy, both are
noted in the suit as insiders as well.
Unlike Kopper, Glisan isn't cooperating with
investigators. He was immediately sentenced to five
years in prison and became the first former Enron
executive to be incarcerated. |
