Merrill Lynch has agreed in principle with US securities regulators to pay $80m (Â£50m) to settle an investigation into transactions it arranged for failed energy trader Enron.
The Merrill agreement which is still to be finalised by the Securities and Exchange Commission would represent the first civil penalties federal regulators have extracted from the many Wall Street investment banks that were involved with Enron.
Merrill did not admit or deny wrongdoing.
The agreement, outlined in a statement last night by Merrill, is likely to prove a benchmark for other banks, including Citigroup and JP Morgan Chase, which earned hundreds of millions of dollars in fees from the company and have subsequently come under scrutiny since its collapse.
Inquiries into Merrill’s involvement with Enron have centred on a series of complex transactions involving electricity-generating barges in Nigeria in 1999.
A Senate sub-committee alleged last year that Merrill had agreed to buy the barges from Enron only after assurances that the energy group would repurchase them within six months at a specified premium.
The transaction, the committee alleged, was concocted as a sham to inflate Enron’s year-end earnings.
Merrill denied this at the hearing. Two months later, it fired a vice chairman, Thomas Davis, and its top energy banker, Schuyler Tilney, for refusing to testify to the SEC and Justice Department about the transactions.
Merrill’s settlement is expected to shift the regulatory focus to Citigroup and JP Morgan and their dealings with Enron. Both banks were accused in Congressional hearings of camouflaging loans to Enron as commodities trades to help the company conceal its true debt levels.
Merrill said it would account for the settlement as part of last year’s fourth-quarter results. Last month Merrill said it had made a net profit of $603m during the period. However, it was unclear how much earnings will be reduced because the bank has yet to decide on the tax deductibility of the settlement costs.
The charge comes in addition to the $200m that Merrill has agreed to pay to settle investigations into conflicts of interest in its equity research and public offering procedures.