Enron Lawsuit Portrays Rubin Pushing Bailout
The lawsuit reveals some previously undisclosed facts about Enron's secret dealings with the investment banks, including the banks' extensive involvement in setting up and funding the off-book partnerships that are at the center of a federal investigation.
The complaint says, for example, that Citigroup or some of its executives were allowed to invest $15 million in "the very lucrative" LJM2 partnership "as a reward for Citigroup's participation in the scheme" to use the partnership to conceal debt and inflate profits.
In addition to providing Enron with $4 billion in loans in the months before its bankruptcy filing, Citigroup lent Enron $2.4 billion disguised as pre-paid swaps that were channeled through a Citigroup subsidiary in the Cayman Islands, the complaint says.
"Keeping Enron's stock price inflated was important to Citigroup," the lawsuit said, "as it knew that if the stock price fell below certain trigger prices," Enron would have to issue millions of additional shares to the partnerships, jeopardizing its credit rating and precipitating bankruptcy.
The lawsuit contends that Mr. Rubin and Citigroup, with eight other Wall Street firms and two Enron law firms, had inside knowledge about Enron's questionable finances and colluded with the company to deceive investors to protect their billions of dollars of Enron investments.
Mr. Rubin and William Harrison, the chairman of J.P. Morgan, in particular sought leniency from the credit agencies because they were desperately trying to arrange an eleventh-hour merger between Enron and Dynegy Inc. that might have saved the company and earned them $90 million in fees, the lawsuit contends.
"These prestigious banks and law firms used their skills and professional reputation to help Enron executives shore up the company's stock price and create a false appearance of financial strength and profitability which fooled the public into investing billions of dollars," said James Holst, general counsel for the lead plaintiff, the University of California's pension fund.