Investment Banks To Settle In Enron-Related Case

by Glen Shapiro, LawAndTax-News.com, New York

30 July 2003

The US Securities and Exchange Commission announced on Monday that investment banks, J.P Morgan Chase & Co. and Citigroup Inc. have agreed to pay a combined $286 million in order to settle charges that they assisted collapsed energy trader, Enron in manipulating its financial statements.

The SEC alleges that by structuring loans to the firm in such a way as to make them appear to be cash from operating activities, the two banks helped Enron to inflate reported cash flow from its operations, under-report cash flow from financing activities, and under-report debt, thus allowing the company to mislead both investors and ratings agencies.

According to a Commission statement issued on Monday, J.P. Morgan Chase will pay $135 million, and Citigroup $101 million for the creation of the transactions in question. Both banks will also pay $12.5 million to the state, and $12.5 million to the New York City authorities, and Citigroup will be obliged to pay $19 million to settle similar charges raised in connection with Dynergy Inc.

Although a settlement has now been reached, neither institution will be obliged to admit any wrongdoing. However, according to reports, both have committed to implement internal reforms.

Speaking with regard to the agreement earlier this week, the director of the SEC's enforcement division, Stephen M. Cutler observed that:

'These two cases serve as yet another reminder that you can't turn a blind eye to the consequences of your actions - if you know or have reason to know that you are helping a company mislead its investors, you are in violation of the federal securities laws.'

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