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Citigroup, J.P. Morgan Chase: Big Fees and Favors in Enron Dealings NEW YORK, July 24, 2002 Citigroup and J.P. Morgan Chase stock prices tumbled yesterday as congressional investigators charged that the financial services companies helped Enron manipulate its finances to deceive investors. Robert Roach, chief investigator for the Senate panel, said both Citigroup and J.P. Morgan Chase may have helped Enron in return for big fees and favors in other deals. “The evidence indicates that Enron would not have been able to engage in the extent of the accounting deceptions it did, involving billions of dollars, were it not for the active participation of major financial institutions willing to go along with and even expand upon Enron’s activities,” Roach said at the hearing of the investigative panel of the Senate Governmental Affairs Committee.
Both Citigroup, the nation's largest financial institution, and J.P. Morgan Chase have called the arrangements appropriate.
"The transactions we entered into with Enron were entirely appropriate at the time based on what we knew and what we were told by Enron," claimed a Citigroup announcement Tuesday on its Web site. "We were assured that Enron’s auditors had approved them and we believed they were consistent with accounting rules in place at the time."
Tuesday's tumble in stock prices for both Citigroup and J.P. Morgan Chase came as investigators for the Senate's Permanent Subcommittee on Investigations said Citigroup and J.P. Morgan Chase assisted Enron for years by lending the collapsed energy trader billions of dollars through disguised commodity trades. The Subcommittee also said that some banks, including Citigroup, helped Enron hide debt in the months prior to Enron's bankruptcy.
"With respect to transactions being 'disguised loans,' every day, companies use structured finance tools to access the value of their operations to fund their future growth. Far from being secret, it was common knowledge that Enron was using these structured finance tools. Rating agencies wrote reports about them and Enron won awards for them," the Citigroup announcement said.
"We believe the changes in accounting rules, together with new certification and disclosure rules proposed by the SEC, and legislation on accounting oversight and regulation such as that now pending before Congress, will go a long way toward restoring faith in the integrity of financial statements. Business and the investing public must be able to bank on certified financial statements," the Citigroup announcement said.
Roach also indicated that Citigroup and J.P. Morgan Chase also pitched the schemes to other companies. Citigroup allegedly marketed the Enron-style deals to 14 companies, successfully selling it to at least three, Roach testified. Additionally, J.P. Morgan Chase may have promoted the schemes to seven other firms. Citigroup and J.P. Morgan Chase were also heavy lenders to WorldCom, which improperly accounted for more than $3.8 billion in expenses before its bankruptcy.
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