Three former senior Merrill Lynch bankers were indicted on Wednesday for allegedly facilitating a Nigerian barge deal that let Enron inflate its income by $12m.
Daniel Bayly, former head of global investment banking, James Brown, former head of strategic asset lease and finance, and Robert Furst, the bank’s then-relationship manager for Enron are charged with conspiring to commit wire fraud and falsify records.
The indictment also alleges they lied to Congress and the SEC about the transaction.
Christopher Wray, US assistant attorney general, said: “Investigations of this type are extremely difficult and complicated, and are made even more so when people deliberately seek to hide the truth from investigators.”
The indictment alleges that Merrill Lynch temporarily bought Nigerian power barges from Enron in 1999. The transaction should not have been considered a true sale under accounting rules because Enron had allegedly promised to buy the barges back at a higher price.
The justice department previously indicted Andrew Fastow, Enron’s former chief financial officer, for allegedly partly engineering the barge deal. Ben Glisan, the energy trader’s former treasurer, last week became the first Enron executive to be given a prison sentence.
The indictment said: “By facilitating Enron’s deception, Merrill Lynch solidified its status as a ‘friend’ of Enron and thereby positioned itself to receive an increase slice of the lucrative deals that Enron dispensed to financial institutions.”
But the department agreed not to prosecute Merrill Lynch, which accepted responsibility for its employees’ conduct. The bank agreed to implement reforms, including setting up a committee to review complex structured finance deals. The department will also appoint a lawyer to oversee an independent auditing firm that will be hired to review the actions of the committee.
Merrill Lynch is co-operating with the department in the Enron investigation.
Andrew Weissman, an Enron Task Force prosecutor, said: “This agreement turns Merrill Lynch into a watchdog of its clients, not just a lapdog.”
Merrill Lynch would not comment on the indictments, but said: “The new policies will help ensure that these kind of transactions do not occur in the future.
“We have co-operated fully with this investigation and will continue to do so.”
If convicted, Mr Bayly and Mr Furst face up to five years in prison. Mr Brown, whom the indictment alleges lied to a grand jury, faces up to 20 years.