Posted on 07/28/2003 4:29:44 PM PDT by Libloather
Citigroup, JP Morgan Settle Enron Charges
1 hour, 31 minutes ago
By Chris Sanders and Paul Thomasch
NEW YORK (Reuters) - Citigroup Inc. and J.P. Morgan Chase & Co. on Monday paid more than $300 million to settle charges by securities and law enforcement officials they helped Enron Corp. cheat investors out of billions of dollars.
The settlement with the U.S. Securities and Exchange Commission and Manhattan District Attorney Robert Morgenthau brings an 18-month investigation to a close and lets the two largest U.S. banks avoid criminal prosecution for securities fraud.
The probe found that Citigroup (NYSE:C - news) and J.P. Morgan Chase (NYSE:JPM - news) structured complex deals that allowed energy trader Enron to hide debt and inflate its cash flow before it filed for bankruptcy protection in late 2001. The banks neither admitted nor denied the charges as part of the agreement.
Enron's collapse was the first in a flood of high-profile corporate meltdowns that shook the public's faith in financial markets, drove lawmakers to clamp down on big business and sparked countless investor lawsuits.
In a news conference on Monday, Morgenthau called for "no more phony baloney" and said future deals designed along the lines of those for Enron would be like "waving a red flag" of warning to authorities.
Under the agreement, J.P. Morgan paid regulators $135 million to close out an investigation into its role in the Enron fiasco. Citigroup said it paid $120 million, which also included about $19 million to settle charges it manipulated Dynegy Inc.'s (NYSE:DYN - news) financial statements.
The money will be put into a fund for victims of fraud at Dynegy and Enron. In addition, Morgenthau said the banks will each pay another $25 million to be split between New York State and New York City and pay investigation costs.
"These two cases serve as yet another reminder that you can't turn a blind eye to the consequences of your actions," Stephen Cutler, the SEC's enforcement director, said at a news conference in New York.
Cutler said the Enron investigation remains "very active," although he declined to name any other potential targets.
But Barclays Plc (BARC.L), CIBC (Toronto:CM.TO - news) and Deutsche Bank (DBKGn.DE) all played roles in similar loans to Enron, according to a separate report issued on Monday. The report, from an examiner appointed by Enron's bankruptcy judge, said all three banks knew of "wrongful conduct" relating to the transactions.
In Washington, members of Congress also weighed in on the possibility that other banks are involved.
"Citigroup and J.P. Morgan Chase were not the only financial institutions to participate in Enron's chiseling, and these settlements are only the latest in what will likely be a long series of enforcement actions arising from the financial scandals of the last two years," said Sen. Carl Levin, a Democrat from Michigan.
DAMAGING E-MAILS
In the investigation of Citigroup and J.P. Morgan, authorities uncovered damaging evidence, including e-mails, that threw into question the way the banks structure loans. The banks have promised to overhaul those practices.
In one such e-mail, a senior executive at J.P. Morgan Chase wrote to a co-worker: "We are making disguised loans, usually buried in commodities or equities derivatives ... With a few exceptions, they are understood to be disguised loans and approved as such."
In a letter to Morgenthau on Monday, J.P. Morgan admitted making mistakes, while both it and Citigroup said they would change their business practices.
The SEC has announced four previous settlements relating to Enron investigations, including an $80 million payout from Merrill Lynch & Co. (NYSE:MER - news) in March.
Citigroup and J.P. Morgan in April agreed to pay $400 million and $80 million, respectively, to settle charges they issued biased stock research to drum up investment banking business.
Shares of Citigroup rose 7 cents to $45.80, while J.P. Morgan's stock added 2 cents to close at $35.49 on the New York Stock Exchange on Monday. Both are among the 30 Dow stocks.
Plenty of perps go free...
The settlement with the U.S. Securities and Exchange Commission and Manhattan District Attorney Robert Morgenthau brings an 18-month investigation to a close and lets the two largest U.S. banks avoid criminal prosecution for securities fraud.DAMN!!
WHY??
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