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Strategies & Market Trends : Zeev's Turnips - No Politics -- Ignore unavailable to you. Want to Upgrade?

To: Softechie who wrote (83778)	6/23/2002 11:55:58 PM
From: Softechie	Read Replies (1) \| Respond to of 99280

Insurers' Filing Says J.P. Morgan Burnished Enron Financial Status By JATHON SAPSFORD Staff Reporter of THE WALL STREET JOURNAL Eleven insurance companies said in new legal documents filed Friday that J.P. Morgan Chase & Co. conspired to make Enron Corp. look healthier than it was, as part of an effort to cover J.P. Morgan's exposure to the energy company. That allegation will now become the insurance companies' defense in a festering legal dispute over who should bear the cost of more than $1 billion in Enron financing gone bad. J.P. Morgan says the insurers should pay because they guaranteed with "surety bonds" a series of failed natural-gas transactions between Enron, J.P. Morgan and an offshore J.P. Morgan company known as Mahonia. The insurance companies have refused to pay because they say the arrangements were really loans disguised as trades. SPECIAL PAGE See the Called to Account page. The documents will further stoke concerns that big Wall Street companies such as J.P. Morgan were actively helping companies such as Enron avoid taxes and otherwise burnish their financial disclosures. The documents allege that through Mahonia, J.P. Morgan bought gas from Enron, which it then sold back to the energy company at a slightly better price, the difference representing an effective interest payment for a J.P. Morgan loan. Regulators frown on such "round trip" transactions, and Mahonia has grabbed the attention of both congressional investigators and the Securities and Exchange Commission. J.P. Morgan has repeatedly denied that it engaged in any wrongdoing. Friday's filing shows the insurance companies -- including Liberty Mutual Insurance Co., Safeco Insurance Co., St. Paul Fire & Marine Insurance Co., and Citigroup Inc.'s Travelers unit -- will assert in court that J.P. Morgan had dark motives for entering such transactions. The filing alleges J.P. Morgan was using "sham" trading arrangements to prop up Enron's finances. It did so, the filing says, because it knew Enron was in trouble, and needed fresh financing to stay healthy and keep making payments on the vast amount of money it owed to J.P. Morgan. J.P. Morgan "knew that unless something was done to bolster or otherwise support Enron's precarious financial condition, of which [J.P. Morgan] had knowledge, it would never be able to recover those loans." "One way to accomplish this goal was for [J.P. Morgan] to provide additional loans to Enron disguised as commodity trades, which were secured through surety bonds to protect" the bank, the document says. The financing allowed "Enron to continue to maintain its investment-grade rating, report strong current financial results, and forecast continued strong results," the document said. That, in turn, "allowed Enron to continue to raise large sums of fresh capital from investors and other lenders which it could use to repay its indebtedness to [J.P. Morgan]." "We believe the insurance companies' allegations have no merit and are simply an attempt to get out of paying a straightforward claim," J.P. Morgan said. Write to Jathon Sapsford at jathon.sapsford@wsj.com Updated June 24, 2002