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Posted on 12/03/2002 9:37:06 PM PST by Ernest_at_the_Beach
NEW YORK -- A series of prepaid oil and gas contracts among Enron Corp. , J.P. Morgan Chase & Co. and an offshore entity were complex circular trades that ultimately went back to Enron, a J.P. Morgan official testified Tuesday.
The acknowledgment by Philip Levy, J.P. Morgan's associate general counsel, came during the second day of a trial in Manhattan federal court, in which the second-largest U.S. bank hopes to recoup $956 million from 11 insurance companies over Enron-related deals.
Mr. Levy said "yes" in response to U.S. District Court Judge Jed S. Rakoff's question: "The structure was totally circular?"
The answer marked the first time that J.P. Morgan has admitted that the Enron- related trades were circular, a term that has been used by the insurers to describe transactions that allegedly helped Enron hide debt and boost cash flow.
The bank, though, has said the structured finance deals it entered with Enron were complex transactions which involved separate contracts among the energy trader, the bank and the British Channel Islands entity Mahonia.
J.P. Morgan brought the lawsuit in December 2001, after the 11 insurance companies refused to pay out on $956 million in six surety bonds. The bonds were written against paid-forward commodity trades between Enron and Mahonia, the special-purpose entity used by J.P. Morgan.
The insurers, including Chubb Corp. (NYSE:CB - News) and CNA Financial Corp. (NYSE:CNA - News) , have claimed that they were tricked into backing disguised loans to Enron, not actual gas and oil trades. They have alleged that J.P. Morgan, through Mahonia, paid Enron up front for gas and oil that Enron would deliver on a future date.
At the same time, they have said, Enron secretly contracted to buy the gas back from Mahonia at a higher price -- the difference in price representing interest on the loan. They have also claimed that Mahonia, an offshore entity that has no employees, never had the ability or intent to use the commodity.
Meanwhile, Mr. Levy said in his testimony that Enron had told J.P. Morgan that it wanted to use Mahonia in the series of forward commodity transactions for " accounting purposes." But Mr. Levy said he didn't know what those accounting purposes were. Critics have long accused Enron of using a maze of limited partnerships and derivatives transactions to shift debt off its balance sheet. Testimony in the case continues on Wednesday. -Lingling Wei, Dow Jones Newswires, 212-227-2017, lingling.wei@dowjones.com; Colleen DeBaise, Dow Jones Newswires, 212-227-2017, lingling.wei@dowjones.com
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Isn't this wild? J.P. Morgan trying to use insurance companies to hide their debt service behind performance bonds. Who knows what evil lurks in the minds of men... The Shadow knows... HA HA HA HA... Remember that old radio show?
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