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

To: Mephisto who wrote (4292)	8/5/2002 11:01:52 PM
From: Mephisto	Read Replies (1) \| Respond to of 5185

Enron hid debt with banks' aid Citigroup is named along with Morgan By The Associated Press (The Associated Press) Wednesday, July 24, 2002 WASHINGTON: Major investment banks gave Enron Corp. multimillion-dollar loans that helped the company disguise its true financial condition and, in some cases, they knew that Enron was using deceptive accounting for the loans, a Senate investigator alleged Tuesday. The investigative subcommittee of the Senate Governmental Affairs Committee reviewed a million pages of documents, most of them subpoenaed, and interviewed dozens of witnesses from Enron and its Wall Street investment banks. It found some banks actively aided Enron in its dodgy accounting in return for big fees and favors in other deals, the investigator, Robert Roach, told a hearing before the panel. "The evidence indicates that Enron would not have been able to engage in the extent of the accounting deceptions it did, involving billions of dollars, were it not for the active participation of major financial institutions willing to go along with and even expand upon Enron's activities," Roach said. The banks, including Citigroup Inc. and J.P. Morgan Chase Co., used complex financial transactions to bolster Enron's anemic cash flow to match its profit growth on paper, according to lawmakers. Enron recorded the money from the bank loans - said to total $8 billion - as prepaid trades of natural gas and other commodities with an entity based in the Channel Islands. Roach said Citigroup and J.P. Morgan Chase had also pitched the deals to other companies. Citigroup "shopped" the Enron-style deals to 14 companies, successfully selling it to at least three, Roach testified. Enron, which filed for bankruptcy in December, used a web of thousands of off-balance-sheet partnerships to hide $1 billion in debt from investors and federal regulators. Shares of Citigroup were down $4.64 at $27.40 in late trading, after falling 11 percent Monday, while shares of J.P. Morgan were down $3.37 at $21.15, adding to a 6 percent decline Monday. iht.com Associated Press)&date=20020725150719

To: Mephisto who wrote (4292)	8/5/2002 11:03:40 PM
From: Mephisto	Respond to of 5185

After Enron, more energy firms face peril By Neela Banerjee (The New York Times) Friday, July 26, 2002 iht.com New York Times)&date=20020728170518 Just when it seems that things cannot become worse in the electricity marketing and trading business, they do. Dynegy Inc. and Williams Co., once the biggest rivals to Enron Corp., are now themselves at risk of joining Enron in seeking bankruptcy protection, according to industry analysts. Their collapse could hasten that of others that do business with them, notably AES Corp., the energy merchant whose interests are deeply intertwined with those of Williams. The bottom of the crisis in the energy trading industry, most industry specialists contend, is still months away. "We haven't seen the last of the bankruptcies," said R. Martin Chavez, chairman and chief executive of Kiodex Inc., a New York risk management firm specializing in the energy sector. "There are somewhere between five and 10 companies that used to have more than $1 billion in revenues that could be filing for Chapter 11 protection by the end of the year." But, as Chavez crisply put it, this is not the end of the world. The shakeout may be showing investors, regulators and analysts the true face of an industry that had insisted Enron was a rogue in its midst. However reluctantly, they are being forced to acknowledge that many of the companies were badly run despite their well-spoken managements - and cash-poor despite their hefty profits. Industry experts say the culling within the industry is unlikely to drive up power prices or tatter reliability in the next year or so, despite warnings from some marketers and traders. It might, instead, transform the business of energy marketing and trading into a going concern, though probably a far more modest and less profitable one than was being promoted as just a few years ago. "This will create a more sober and sustainable industry," said Paul Patterson, an independent-industry energy analyst, "but it's unfortunate it has to happen this way. People will lose their jobs. 'Investors have already lost a lot of money." Every few days for several months now, an unflattering disclosure of some kind has driven down the credit ratings and stock prices of energy-trading companies that were once lionized by Wall Street. Now, as some of the companies try to come clean, in bits and pieces, about the actual value of their trading assets, investors - rather than rewarding their candor - have abandoned them. On Monday, Williams said its energy trading portfolio had lost about $350 million of its value, bringing it to about $2.2 billion. The next day, its credit ratings on long-term debt were cut to junk status, and its share price sank. On Tuesday, Dynegy announced that its cash flow would be considerably less than was forecast the previous week and canceled a bond issue. Immediately afterward, the stock price of Dynegy, which is partly owned by Chevron Texaco Corp., plummeted 64 percent. By midday Thursday, Dynegy was trading at 68 cents a share, down from 98 cents at Wednesday's close, and Williams at $1.02, down from $1.25 Wednesday. Each has lost more than 95 percent of its market value since a year ago. Williams declined to comment on rumors of bankruptcy. Dynegy said it had adequate cash to continue. iht.com New York Times)&date=20020728170518

To: Mephisto who wrote (4292)	8/5/2002 11:04:45 PM
From: Mephisto	Respond to of 5185

Enron deals haunt Merrill Firm helped energy trader cook books, panel says By Richard A. Oppel Jr. (The New York Times) Thursday, August 1, 2002 iht.com New York Times)&date=20020802160016 WASHINGTON: Using internal documents, e-mail messages and even a videotape as evidence, lawmakers on a Senate panel contended that Merrill Lynch Co., one of America's largest and most respected brokerage firms, repeatedly cut corners and compromised its business practices to win more investment banking fees from Enron Corp. In one deal, in which Merrill acquired an interest in a Nigerian barge operation that allowed Enron to book a last-minute $12 million profit for 1999, a senior Merrill executive worried that the firm might "aid/abet" the manipulation of Enron's income statement, documents obtained by the Senate's permanent subcommittee on investigations show. Merrill said the executive's concerns were resolved. Committee investigators also said Tuesday that a Merrill analyst, John Olson, was dismissed from the firm in 1998 because Merrill was upset that his skeptical coverage of Enron was costing the firm millions of dollars in investment banking revenue. A Merrill official testified Tuesday that it was common for companies to take research coverage into account in awarding investment banking business, but he said Olson's departure was "not in any way connected" to his Enron research. "Merrill Lynch helped Enron artificially and deceptively create revenue," Senator Carl Levin, Democrat of Michigan, who is chairman of the subcommittee, said Tuesday. "Enron couldn't have engaged in the deceptions it did without help from a major financial institution," he said. "Merrill Lynch assisted Enron in cooking its books." Defending Merrill at a four-hour hearing before the committee, G. Kelly Martin, the president of Merrill's international private client division, testified that the firm "strongly believes that our limited dealings with Enron were appropriate and proper based on what we knew at the time." "At no time did we engage in transactions that we thought were improper," he added. Two investment bankers who played a role at Merrill in the deals that were scrutinized Tuesday, Schuyler Tilney and Robert Furst, both appeared at the hearing but declined to testify, invoking their Fifth Amendment right against self-incrimination and citing a pending Justice Department inquiry into one Merrill transaction with Enron. Tilney has been placed on paid leave by Merrill, where he is head of the firm's energy investment banking practice; Furst left Merrill last year. Merrill's two top executives, David Komansky, its chairman and chief executive, and Stanley O'Neal, its president, issued a statement Tuesday afternoon that sought to reassure employees about Merrill's conduct while also mildly criticizing the Senate panel. "The tenor of the subcommittee hearing reflected a disturbing skepticism and mistrust - not only of Merrill Lynch and our motives but also of financial institutions and the business community generally," their statement said. "As Merrill Lynch employees, all of us play an important role in restoring the confidence and trust of our clients, government officials and the public. The misdeeds of some companies or individuals must not be allowed to cast a shadow on the fundamental integrity of our global capital markets system." But lawmakers on the panel highlighted several episodes that they said showed Merrill's willingness to abandon judgment and impartiality to curry favor with Enron, including Olson's dismissal and the Nigerian barge deal. Lawmakers also questioned Merrill's role in raising close to $400 million for LJM2, one of the secretive partnerships controlled by Enron's former chief financial officer, Andrew Fastow, that played a central role in Enron's collapse. A Merrill official responded that Enron's former chief executive, Jeffrey Skilling, had assured Merrill that the Fastow partnership dealings were appropriate. Olson left Merrill in August 1998 after two Merrill bankers complained that his coverage of Enron risked costing Merrill investment banking business. The analyst who replaced Olson soon awarded Enron a higher rating, and on Jan. 15, 1999, Tilney sent an e-mail message to Merrill's president at the time, Herbert Allison, stating that Enron's "animosity" over Merrill's research had "dissipated," and "to that end" the company had awarded the firm business that should bring in at least $45 million in fees. Merrill officials say Olson left because of a consolidation in the research department. Citing terms of his severance agreement with Merrill, Olson declined to discuss whether Enron's complaints had led to his departure. But he said Merrill's explanation of a consolidation was "entirely news to me," adding that such a move "was never part of any discussion." iht.com New York Times)&date=20020802160016

To: Mephisto who wrote (4292)	8/5/2002 11:06:43 PM
From: Mephisto	Respond to of 5185

Enron probe also implicates Wall Street Hearings Tuesday raise questions about Merrill Lynch. csmonitor.com By Gail Russell Chaddock \| Staff writer of The Christian Science Monitor WASHINGTON - The congressional probe of Enron's collapse is moving increasingly beyond the energy firm's Houston boardroom, beyond memos by its accounting firm, and onto Wall Street. The emerging picture is of an investment-house culture where being a player in major deals may at times mean ignoring dubious or even illegal practices. At the heart of the investigation now is the appearance that Wall Street firms made concerted efforts to hide Enron's financial woes - and to win Enron's underwriting business - at the expense of giving sound advice to investors. Tuesday, lawmakers heard testimony about how Merrill Lynch, even though only a bit player in the Enron debacle, felt pressure to "put its balance sheet to work" for the Houston energy firm. "What our investigation has uncovered ... is that Enron did not weave its elaborate web alone," says Carl Levin (D) of Michigan, and chairman of the Senate Permanent Subcommittee on Investigations. "Without the support and assistance of major financial institutions, Enron could not have engaged in the extent of the deceptions that it did." The revelations have broadened the focus from the still-central questions of how and why Enron collapsed to matters that challenge the credibility of Wall Street. At the same time, they add impetus to further efforts on Capitol Hill to crack down on corporate fraud, rather than stop with the reforms signed by President Bush Tuesday. While the new law contains tougher penalties and a new oversight board for the accounting profession, some lawmakers in both parties are saying it's only a first step. Wall Street's involvement with Enron included fiendishly complex transactions between the energy-trading giant and financial firms - prominently Citigroup and J.P. Morgan Chase - that helped conceal billions in Enron debt. That helped Enron avoid credit downgrades that might have cued investors to bail out. Documents and e-mails released at Tuesday's hearing suggest that Enron was putting pressure on Merrill to raise its rating of the energy stock from "neutral" to "accumulate." Merrill did end up changing the advice it gave to its investor clients - after changing the analyst responsible for the rating. Internal e-mails suggest that as a result of the rating upgrade, Merrill picked up $40 million to $50 million in new investment business from Enron, according to congressional investigators. Two of the top executives in Merrill's energy investment-banking department, Schuyler Tilney and Robert Furst, invoked constitutional protections and refused to answer questions on these issues at Tuesday's hearing. Also, the former Merrill analyst responsible for the "neutral" ratings did not testify at Tuesday's Senate hearings. But in an appearance before a House panel in February, he offered this assessment of how the corporate culture worked: "Enron had a considerable investment-banking agenda every year, and attracted bankers like roaches to honey. The common unspoken, unwritten understanding came back thus: [Enron] would be happy to do banking business, provided the analyst had a strong 'buy' recommendation on the stock," said John Olson, who is now director of research at Sanders Morris Harris, a Houston-based securities firm. Merrill Lynch says the firm's new analyst was, in fact, one of the first to downgrade Enron as its problem became public last fall. "If we knew then what we know now, we would not have conducted business with Enron," Merrill vice president Kelly Martin said at Tuesday's hearing. Senate investigators also documented a deal involving the purchase of three Nigerian barges in 1999 that helped Enron misrepresent its losses. Internal Merrill documents refer to this as a "balance sheet deal." Financial experts say that such deals were not unusual in the climate of the 1990s. "Merrill knew why the transactions were being executed - sham transactions designed to get an accounting result that made no economic sense whatsoever," says Lynn Turner, director of the Center for Quality Financial Reporting at Colorado State University and former chief accountant of the Securities and Exchange Commission. "That was not unusual," he adds. "The message is that unregulated, Wall Street will put the dollars they are generating well before the interests of investors." Meanwhile, lawmakers are ramping up new bills to help avoid future corporate accounting scandals. House GOP leaders say they plan legislation to aid defrauded investors in getting back some of their losses. "There is a lot of sunlight being shone on what the practices of Wall Street have become," says Mr. Turner. Resulting litigation may change those practices. On the Senate side, John McCain (R) of Arizona promises to attach an amendment to remaining bills this year that would require firms to clearly disclose stock options as an expense. House Democrats are calling for a broader agenda they dub a "business, investors', and employees' bill of rights," including pension reform, curbs on golden parachutes for corrupt executives, and a new law to penalize companies who avoid taxes by moving abroad. "The President's decision to sign the corporate accountability reform bill today is a good first step ... but Congress and the President need to do much more," says House Democratic leader Richard Gephardt. csmonitor.com