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Non-Tech : The Enron Scandal - Unmoderated -- Ignore unavailable to you. Want to Upgrade?

To: Zoltan! who wrote (1770)	2/20/2002 7:08:38 AM
From: Glenn Petersen	Read Replies (3) \| Respond to of 3602

Wall Street next up for Enron probe: washingtonpost.com Congress Widens Enron Probe to Wall St. By Ben White and April Witt Washington Post Staff Writers Wednesday, February 20, 2002; Page E01 NEW YORK, Feb. 19 -- Congressional investigators have fanned out across Manhattan over the past several days, collecting documents and interviewing officials at Wall Street firms about their relationships with Enron Corp., a source familiar with the congressional inquiries said. A House hearing on Wall Street's role in the energy-trading giant's collapse could come as early as next month. Congress released several Enron-related documents today, including a memo based on an Oct. 18 interview in which former Enron treasurer Jeffrey McMahon, now the company's president, said he had fielded complaints from bankers who felt pressured to invest in LJM2, one of Enron's off-balance-sheet partnerships. On Wall Street, interviewers from the House Energy and Commerce Committee are focusing on firms that underwrote securities issued by Enron while also investing in and helping to raise money for partnerships that the company kept off its books. Firms beingquestioned include Merrill Lynch & Co., First Union (now Wachovia), Lehman Bros., Credit Suisse First Boston Corp., Citigroup Inc., Deutsche Bank AG, J.P. Morgan Chase & Co. and the CIBC World Markets unit of Canadian Imperial Bank of Commerce, according to the House source. Among other things, House interviewers want to know whether Enron threatened to withdraw lucrative underwriting business from firms that declined to invest in the company's partnerships. "We're trying to determine if any promises or, for that matter, any threats were made to investment bankers" by Enron executives to get the banks to invest in the partnerships, said Ken Johnson, a spokesman for Rep. W.J. "Billy" Tauzin (R-La.), chairman of the House Energy Committee. Hearings on Wall Street's role in Enron's collapse are also likely to take place in the Senate in the next few weeks, as Congress expands the scope of its inquiry beyond accountants and company executives to include the Wall Street firms that helped structure Enron's off-balance-sheet partnerships and then market them to investors. Congress is also likely to summon analysts from Wall Street firms to ask if they felt pressured to maintain "buy" ratings on Enron stock in order to preserve business for the investment-banking arms of their companies -- even as Enron spiraled toward bankruptcy court. Investment bankers and research analysts at Wall Street firms are theoretically separated by "Chinese walls" and are not supposed to communicate with each other. But Congress is likely to question whether the walls prevented analysts from getting important information about a company's true financial picture. As it attempted to secure their investment, Enron provided banks and brokerage firms with information on the partnerships that was not shared with investors and also may not have been shared with Wall Street analysts. Congress also wants to know what role, if any, Wall Street played in assisting Enron, and perhaps other firms, present rosier-than-reality balance sheets. The special investigative committee of Enron's board said in a report last month that LJM2, and other off-balance-sheet instruments used by Enron, helped hide Enron's true financial picture, misleading investors and helping to inflate the company's stock price. In testimony before the House Energy and Commerce Committee this month, McMahon said former Enron chief financial officer Andrew S. Fastow enticed investment banks to take part in the LJM2 partnership by promising future underwriting business. Fastow declined to testify, invoking his Fifth Amendment right against self-incrimination. In the memo released by Congress today, McMahon told interviewers: "Several bankers came to McMahon and inquired whether an investment in LJM gets them an inside position for Enron business . . . McMahon recounted that First Union Bank's Paul Riddle called and complained about not getting a bond deal. He stated that he was promised the next bond deal for investing in LJM." A spokesman for Wachovia Corp. said that Riddle would not speak to the press and that Wachovia would not discuss its investment in the partnership. Employees of other financial institutions also "felt linkage existed between investment in LJM and Enron business," the memo said. Rep. John J. LaFalce (N.Y.), the ranking Democrat on the House Financial Services Committee, has criticized the arrangement. "It's my belief that that violates the law, and it's something we should investigate aggressively," LaFalce said after McMahon raised the issue during his recent testimony. Enron spokesman Mark Palmer said he did not believe the relationships described by McMahon were illegal.