SEC Approves Settlement With MerrillMar 17, 2003 | AP The Securities and Exchange Commission Monday charged four former senior Merrill Lynch executives with helping Enron inflate profit and mislead investors with two financing deals. The SEC also approved a settlement in which Merrill will pay $80 million to resolve the case.
The SEC and the nation's biggest brokerage firm last month reached a tentative agreement regarding the 1999 transactions, which now has been approved by the SEC commissioners. The firm neither admits to nor denies wrongdoing in the settlement, which it says ends the SEC's investigation into its dealings with Enron.
"This action is a message to all who would help a company commit fraud: we will bring the full weight of our enforcement arsenal against you," said SEC Chairman William H. Donaldson. "Our commitment to protect investors demands nothing less."
SEC officials said all of the $80 million that Merrill is paying will eventually go to compensate investors who were hurt by the fraud. They said the $80 million, comprised of civil fines, restitution payments and interest, represented one of the largest amounts ever paid in a civil securities law case.
In a civil lawsuit filed in federal court in Houston, the SEC alleged that the four former Merrill executives "aided and abetted Enron Corp.'s earnings manipulation" by working with Enron executives to set up the transactions. The four men are disputing the SEC's allegations.
The SEC named former Merrill vice chairman Thomas W. Davis, 49; Schuyler Tilney, 47, an investment-banking managing director who directly oversaw corporate finance matters related to Enron; Robert Furst, 41, a managing director in the investment banking division; and Daniel Bayly, 55, the global head of the division who later became the firm's chairman of investment banking.
The former executives have previously denied any wrongdoing. Davis and Tilney were fired by the firm in September; Furst resigned in 2001 and Bayly retired last fall. Davis, Tilney and Furst asserted their Fifth Amendment privilege and refused to testify before a Senate panel in July and also refused to give testimony to the SEC in its investigation.
Davis "intends to vigorously defend the charge against him," said his attorney, Thomas Fitzpatrick.
He said Davis gave final approval to one of the deals, in which Merrill bought three energy-producing Nigerian barges from Enron, only after it had been thoroughly checked out by Merrill's lawyers and firm executives. "He did not aid Enron in fraudulently accounting for the transaction and he did not even know how Enron booked the transaction," Fitzpatrick said.
Bayly's lawyers, Lanny Breuer and Andrew Lawler, made the same point concerning his role in the barge transaction. "Dan Bayly is a man of great integrity whose limited actions in this matter were undertaken in complete good faith. He did nothing wrong," they said.
Tilney's lawyer, Robert Trout, said his client "did not engage in any wrongdoing."
"He is a person of great integrity and would never participate in a fraud scheme," Trout said. "We intend to contest these allegations."
Said Furst attorney Daniel Horwitz: "Robert Furst is a person of integrity and did not engage in wrongful conduct. We plan to fight these allegations vigorously."
News of the SEC action came the same day congressional investigators released a report concluding that the SEC faces legal obstacles in pursuing such cases alleging that Wall Street firms aided the now-bankrupt Enron and other companies in accounting fraud.
Merrill agreed to refrain from future violations of federal securities laws, and said in a news release that it agreed to the settlement "to resolve the inquiry and put the matter behind it."
One of the deals involved Merrill's purchase from Enron of three energy-generating Nigerian barges; the other was an energy trade between the Wall Street firm and Enron.
The Justice Department (news - web sites), in a criminal complaint filed last fall against Enron's former chief financial officer, Andrew Fastow, called the Nigerian barge deal a "sham transaction" that helped Enron "manufacture earnings."
Several recent investigations in Congress have shone a spotlight on the role in Enron's complex, deceptive financial schemes of its big investment bankers Merrill, Citigroup and J.P. Morgan Chase which have been sued by Enron shareholders seeking billions of dollars in damages.
By reaching a settlement with the SEC, Merrill avoids the release of findings by the agency that could be used against it in the court cases.