Two top Merrill Lynch bankers at the center of criminal and civil probes involving questionable Enron financing deals were sacked Wednesday evening.
Vice Chairman Thomas Davis, who oversaw research, and Schuyler Tilney, head of Merrill’s energy group, were terminated for refusing to cooperate with Justice Department and Securities and Exchange Commission investigations into complex transactions that might have helped hide Enron’s massive debt from investors.
The pair are the highest-ranking Wall Street casualties so far in the Enron debacle. J.P. Morgan Chase and Citigroup also are being investigated for possible roles in deals that ended in Enron’s collapse, which cost investors more than $50 billion.
The firing of two senior executives comes at an awkward time for the nation’s largest brokerage as it fights to rebuild a reputation badly damaged by scandals.
Merrill raked in tens of millions in fees from Enron as a stock and bond underwriter, lender, fundraiser, investor and counterparty in energy derivatives deals.
Davis, one of two vice chairmen, was due to retire in November. The 49-year-old was demoted from running Merrill’s investment banking operations earlier this year amid conflict-of-interest allegations involving Merrill analysts.
Tilney, 46, was put on paid leave in July for refusing to testify before a Senate committee on Enron. Tilney was a friend of and vacationed with Andrew Fastow, Enron’s former CFO. His wife, Elizabeth, was a senior Enron executive and friend of former chairman Kenneth Lay. She left Enron in January.
Tilney was responsible for setting up one of Fastow’s notorious off-balance-sheet entities, LJM2. Ninety-seven Merrill executives were persuaded to invest $17.6 million in LJM2, including $750,000 from Tilney and $150,000 from Davis. Investigators believe Fastow used secret partnerships to hide Enron’s disastrous financial state.
Tilney also helped arrange power swaps that allowed Enron to claim millions in revenue in 1999.
In a terse press release, Merrill said that while it regretted the action, it was enforcing its policy requiring employees to fully cooperate with regulatory and law enforcement investigations. Lawyers for Tilney and Davis say their clients have done nothing wrong.