stock broker fraud

Wall Street's Involvement with Enron

From NPR's Weekend Edition, August 17, 2002

Investment firm giants Merrill Lynch, JP Morgan Chase and Citigroup have been accused of helping Enron inflate profits and conceal debt.

In December of 1999, Enron's African division sold three Nigerian power barges, essentially floating power plants, to Merrill Lynch. Six months later, Enron bought them back at a loss through one of Enron's so-called special-purpose entities. However, this transaction allowed Enron's African division to record a temporary $12 million gain, thus exceeding quarterly earnings expectations and boosting bonuses for the division's executives.

Senator Carl Levin from Michigan, the chairman of the subcommittee which has been investigating Wall Street's involvement with Enron, says Merrill Lynch was not alone. Levin believes Citibank and Chase were also involved in fraudulent practices through the use of phony trades, which made it possible for these transactions to look as though money was coming into Enron from business deals when, in fact, it was really loans from the banks.

Although Chase and Citigroup set up these special purpose entities, the investment firms deny that they, in fact, controlled them. Still, the structure of these deals had some executives worried. One internal e-mail from a senior Citigroup loan executive said, quote, "The paperwork cannot reflect their agreement, as it would unfavorably alter the accounting." Senator Levin believes Chase, Citigroup and Merrill Lynch are guilty of fraud.

Citigroup has announced it will no longer provide financing to companies that plan to use the money to conceal debt. But in the case of Enron, the horse is already out of the barn, because while the banking side of Merrill Lynch, Chase and Citigroup were allegedly helping Enron conceal its true financial condition, research analysts at these same firms were advising that Enron was a great place to invest.

If you have suffered financial losses due to your broker's advice to invest in failing stocks, contact the Consumer Justice Group immediately for an evaluation of your case.

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