Banks agree to pay nearly $300 million for roles in Enron woes
NEW YORK (AP) – JP Morgan Chase and Citigroup agreed Monday to pay a total of about $286 million for their roles in energy trader Enron’s manipulation of its financial statements. JP Morgan will pay $135 million and Citigroup will pay $101 million as part of the settlement, the Securities and Exchange Commission said. The banks also agreed to pay $50 million total to the state and the city to settle a similar charges.
Citigroup will also pay $19 million to settle SEC charges that it helped energy company Dynegy Inc. manipulate its financial statements.
JP Morgan and Citigroup did not immediately respond to calls seeking comment.
The SEC said most of the money would go to victims of Enron’s collapse amid allegations of massive accounting irregularities – the first in a string of scandals that have tainted corporate America since 2001.
The government had accused Morgan and Citigroup of helping Enron design complex transactions that allowed it to underreport its debt.
“If you know or have reason to know that you are helping a company mislead its investors, you are in violation of federal securities laws,” SEC enforcement chief Stephen Cutler said in a statement.
The SEC said both banking companies helped Enron design “prepay transactions” – essentially loans that were disguised as commodity trades to help Enron hide debt. The SEC said the settlement brings to $324 million the amount of money it has won from companies for Enron victims.
Manhattan District Attorney Robert Morgenthau said his office would not bring charges against the two banks in connection with the Enron fraud. “It is important that two major banks have committed to reform their internal procedures to help ensure transparency in financial transactions,” Morgenthau said in a statement.
“Other financial institutions would be well-advised to follow suit, as there is no place in free and fair markets for players who think they can continue to conduct risky business under a cloud of deception and secrecy,” Morgenthau said.
The settlements are the latest developments for investment banks that worked with Enron – and then become ensnared in its scandal.
J.P. Morgan and Citigroup are among 11 banks and brokerages negotiating a possible settlement with plaintiffs in a consolidation of shareholder lawsuits in Houston seeking at least $25 billion. In May, U.S. District Judge Melinda Harmon in Houston and U.S. Bankruptcy Judge Arthur Gonzalez in New York ordered the banks, Enron and plaintiffs to start settlement talks with help from a mediator.
In January, an investigative panel of the Senate Governmental Affairs Committee concluded that J.P. Morgan and Citigroup helped Enron deceive the investing public in a series of complicated, multimillion-dollar transactions involving Enron’s pulp and paper business.
The subcommittee examined four related transactions – known as Fishtail, Bacchus, Sundance and Slapshot – which investigators allege helped Enron disguise its true financial condition in 2000 and 2001 by reporting loans as revenue-generating sales.