<<I'm not sure about that. Some people feel while that 800lb gorilla, which is owned by JPMorgan, Citicorp and GoldmanSachs, is sitting on the gold price, POG can't move up very far.>>
sorry if there is a prior posting:
Tuesday July 23, 3:41 pm Eastern Time
Reuters Business Report
Chase, Citi Sold Others Enron-Style Deals
By Kevin Drawbaugh
WASHINGTON (Reuters) - Two top U.S. banks entered into Enron-style "prepay" financings with at least 10 unidentified companies, congressional investigators said on Tuesday, as scandal again whipsawed the stock markets.
J.P. Morgan Chase & Co. Inc. (NYSE:JPM - News) and Citigroup Inc. (NYSE:C - News) helped Enron Corp. (Other OTC:ENRNQ.PK - News) for years by lending the fallen energy trader billions of dollars through elaborately disguised commodity trades, said investigators for the Senate Permanent Subcommittee on Investigations.
The deals -- known as "prepays" -- done by the banks for the now bankrupt Enron from 1992 to 2001 were so successful that they were packaged and marketed to other companies, investigators said.
"After several years of participating in Enron 'prepays,' both Chase and Citigroup ... began attempting to sell the product to other companies," said a congressional staff statement delivered to the subcommittee at a hearing.
"Chase informed the subcommittee that it entered into Enron-style prepays with seven companies apart from Enron. Citigroup indicated that it shopped the idea to 14 companies apart from Enron, successfully selling it to at least three."
Amid spreading investor mistrust of accounting, the subcommittee delved into the role played by some of the world's largest banks in Enron's collapse last fall, opening a season of stunning revelations of corporate accounting chicanery and executive excess.
Subcommittee Chairman Carl Levin, a Michigan Democrat, called the Enron prepay deals "an accounting sham."
He added, "Chase and Citicorp knew what Enron was doing, assisted Enron and profited from those actions."
Enron's December bankruptcy was the largest in U.S. history until Sunday, when it was topped by that of WorldCom Inc., the long-distance telephone and Internet traffic carrier.
Investigators for the subcommittee said Enron -- struggling with a secretly crumbling balance sheet -- obtained financing of $8.5 billion over nine years from Citigroup and J.P. Morgan Chase, which took in hefty fees and interest payments.
The trades were known as prepay transactions. Enron booked proceeds from them as cash flow from operations, but should have booked those proceeds as debt, committee staffers said.
Bankers testifying before the committee defended themselves by saying that prepay financings are commonplace, and the ones they did with Enron seemed legitimate at the time, based on what the banks knew then about Enron and its auditor.
"The emerging facts suggest that Enron was not the company we thought it was," said David Bushnell, head of global risk management at Citigroup in his statement to the subcommittee.
Jeffrey Dellapina, a J.P. Morgan Chase managing director who was involved in the "prepay" deals, also said, "We do not provide accounting services to our clients."
Enron's decision to book deal proceeds as operational cash flow, rather than as derived from loans, was its own and was blessed by its auditor Andersen (ANDR.UL), the bankers said.
"Enron assured Citibank that its accounting treatment of prepaids had been fully vetted by Arthur Andersen," said Rick Caplan, co-head of Citigroup's North American credit derivatives group.
The subcommittee said it found that in 2000, Enron's total debt would have been 40 percent higher, and its funds from operations 50 percent lower, if not for the prepay deals.
The banks knew about this, and helped Enron hide debt via complex prepay trades through offshore, bank-controlled special-purpose entities, propping up the company's balance sheet, credit rating and stock price, investigators said.
Levin challenged the Chase witnesses about the true identity of a holding company known as Mahonia Ltd., which he said was created and paid for by Chase and run by its agent to act as an intermediary in several of the Enron prepay deals.
"Don't try to sell us on the concept that they were anything other than a shell corporation created by you to assist Chase," Levin said.
But the Chase officers said Jersey-registered Mahonia was owned by a charitable trust governed by a board of directors who made independent decisions on individual transactions.
Besides Citigroup and JP Morgan Chase, subcommittee staffers said smaller deals worth $1 billion in total involved Credit Suisse Group Inc. (CSGZn.VX), Barclays Plc (London:BARC.L - News), FleetBoston Financial Corp (NYSE:FBF - News), Royal Bank of Scotland Group Plc (London:RBOS.L - News) and Toronto-Dominion Bank (Toronto:TD.TO - News).
Class-action lawsuits filed this spring by Enron investors and former employees have named as defendants Citigroup, JP Morgan, Credit Suisse, Barclays and other leading banks, alleging they schemed with former Enron executives to bilk investors out of tens of billions of dollars.
biz.yahoo.com |
