Citigroup, J.P. Morgan reach Enron settlement

THE BALTIMORE SUN

NEW YORK - The Securities and Exchange Commission announced yesterday that J.P. Morgan Chase & Co. and Citigroup Inc. had agreed to pay $255 million to settle SEC allegations that they helped Enron Corp., the collapsed energy-trading company, to fraudulently mislead investors on its financial condition.

In addition, the two banking companies agreed to pay $50 million to the state of New York and to New York City to settle similar allegations about their dealings with Enron, the Manhattan district attorney's office announced yesterday afternoon.

Without admitting or denying the commission's allegations, J.P. Morgan Chase agreed to pay $135 million and Citigroup $120 million. The settlement also resolves the commission's charges stemming from the assistance that Citigroup provided to Dynegy Inc., another energy-trading company, to manipulate its financial statements.

"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," Stephen M. Cutler, the director of the SEC's enforcement division, said in a statement.

The SEC said $236 million of the money would go to Enron investors who experienced losses because of the fraudulent finances, and $19 million would go to Dynegy investors.

The SEC accused J.P. Morgan Chase and Citigroup of helping their clients to set up complex financial transactions to cover up what were in essence loans.

These transactions, the SEC said, enabled Enron and Dynegy to inflate reported cash flow from their operating activities, underreport cash flow from financing activities and underreport debt.

As a result, the SEC said, Enron and Dynegy presented false and misleading pictures of their financial health.

The commission asserted that both financial institutions knew that Enron was engaging in these transactions to allay concerns among investors, Wall Street analysts and credit-rating agencies about its cash flow from operating activities and outstanding debt.

It also asserted that Citigroup knew that Dynegy had similar motives for its structured finance transaction.

Under the agreement with the Manhattan district attorney's office, J.P. Morgan Chase and Citigroup will each pay $12.5 million to the state of New York and $12.5 million to New York City, as well as the costs of the investigation.

As a result of these settlements, the Manhattan district attorney's office said it would not prosecute J.P. Morgan Chase or Citigroup or their employees for their involvement with Enron's financial transactions.

Copyright © 2020, The Baltimore Sun, a Baltimore Sun Media Group publication | Place an Ad
66°