Government investigators probing Enron Corp. have notified two major Wall Street banks of possible civil action related to the collapsed energy trader, while interviews of former Enron insiders have accelerated sharply in recent days, sources said on Monday.
Two so-called “Wells Notices” have been issued by the market-regulating U.S. Securities and Exchange Commission, under pressure to show results on the Enron case, to unnamed Wall Street investment banks, said sources close to the case.
The SEC staff sends a Wells Notice to a company to tell it the staff is considering recommending that the commission take action against the company, which can then respond in writing.
The SEC — which has already charged former Enron financier Michael Kopper with securities fraud — declined to comment.
Three major Wall Street banks were brought before Congress this summer to explain their dealings with Enron, including Citigroup’s Salomon Smith Barney unit, J.P. Morgan Chase & Co. Inc. and Merrill Lynch and Co. Inc..
All three said their relations with Enron were proper.
“Wells Notices have gone out to two banks,” said a source who asked not to be identified. Said another, “Some banks have received Wells Notices … Who has gotten them, I don’t know.”
A Merrill spokesman declined to comment, except to say, “We always cooperate fully with (regulatory) inquiries.” Citigroup and J.P. Morgan also declined to comment.
At the same time, sources said, the SEC and the Department of Justice have been bringing former Enron directors and executives into Washington for intensive interviews.
“They’re trying to determine, along a number of lines of inquiry, whether the (Enron) financial statements were misstated beyond what’s been reported to date,” said a source.
The interviews may signal a shift by prosecutors away from technical accounting aspects of the case and toward allegations of fraud that are simpler for juries to grasp, sources said.
The accelerated pace of interviews and depositions also points to the likelihood of more legal action, lawyers said.
“Everybody is just kind of waiting for another shoe to drop. The sense is that it’s going to happen sooner rather than later,” said Philip Hilder, a former federal prosecutor and head of the law firm Hilder & Associates in Houston.
On Aug. 21, Kopper became the first Enron insider to plead guilty and agreed to cooperate with a criminal probe into the collapse of Enron, which filed for bankruptcy on Dec. 21.
Kopper helped set up and manage a vast network of partnerships designed to hide debt, pad profits and deceive investors, prosecutors said. He pleaded guilty to money laundering and fraud charges in a hearing in Houston.
Houston-based Enron’s collapse wiped out thousands of jobs and billions of dollars in equity and was the first in a wave of corporate scandals that damaged U.S. investor confidence.