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Six Banks Knew Their Enron Deals Were 'Funky,' Report Says

Jul 29, 2003 | USA TODAY

Six Wall Street banks knew their financial deals with Enron, before its downfall, were illegal, and the banks "aided and abetted" Enron's former executives, alleges a report released Monday in Enron's bankruptcy case.

Citigroup, J.P. Morgan Chase, Barclays, BT/Deutsche, CIBC and Merrill Lynch "had actual knowledge of the wrongful conduct" in hundreds of financial transactions with Enron from the early 1990s to late 2001, shortly before Enron filed for bankruptcy protection, the report alleges.

For instance, in one $750 million deal involving Citigroup and Enron-related partnership Sundance Industrial, Citigroup executive Dave Bushnell wrote in an e-mail to a co-worker that Sundance was "a funky deal." The aggressive accounting was "a franchise risk to us if there is (bad) publicity."

The banks also helped to set up and close the deals, which had colorful tags such as "Mahonia," "Nighthawk," "Cochise" and "Nimitz," the report alleges.

The lengthy report was filed in U.S. Bankruptcy Court by Neal Batson, an attorney who is the court-appointed examiner in the Enron bankruptcy.

Batson wrote that more than $5 billion claimed by the Wall Street banks against Enron should instead be spread among the thousands of other creditors in the bankruptcy case.

Much of Batson's report covers similar ground to congressional investigations, lawsuits and other legal proceedings involving Enron.

But Batson, whose team has interviewed hundreds of people for his three reports, found in his latest report that:

Former Enron executives allegedly entered into financial deals "designed to manipulate (Enron's) financial statements" and which led to the release of "materially misleading statements" violations of securities laws.

The executives included former chief financial officer Andrew Fastow, former chief accounting officer Rick Causey, former treasurer Benjamin Glisan and former treasurer Jeff McMahon. McMahon was portrayed in Enron's internal investigation as a concerned skeptic of its accounting, but Batson's report alleges his actions presented Enron's finances in a false light.

• Former Enron corporate officers, who had entered into numerous side agreements with Wall Street banks, allegedly "concealed the existence of these agreements" from Arthur Andersen, Enron's longtime auditor.

In some cases, the executives and managers allegedly knew the business deals were based on misleading facts and served "no business purpose" violations of accounting rules and securities law.

Former Enron officers allegedly "controlled the flow of information to Andersen" to obtain the right accounting numbers for Enron's financial statements.

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