Will this do any good? Will this make Wall Street less willing to play along the next time an Enron appears? I don't know...
Posted by DeLong at July 28, 2003 10:22 AM | TrackBackWSJ.com - JP Morgan, Citigroup to Pay $255 Million in Enron Case: NEW YORK -- JP Morgan Chase and Citigroup agreed Monday to pay a total of $255 million for their roles in Enron's manipulation of its financial statements. Morgan will pay $135 million and Citigroup will pay $120 million as part of the settlement, the Securities and Exchange Commission said. The SEC said most of the money would go to victims of Enron's massive corporate fraud -- the first in a string of scandals that have tainted corporate America since 2001.
The government had accused Morgan and Citigroup of helping Enron design complex transactions that allowed it to underreport its debt. "If you know or have reason to know that you are helping a company mislead its investors, you are in violation of federal securities laws," SEC enforcement chief Stephen Cutler said in a statement. In December, Citigroup and J.P. Morgan Chase officials told an investigative panel of the Senate Governmental Affairs Committee that they believed they were engaging in lawful deals with Enron. Citigroup's settlement also includes an allegation that it helped Dynegy Inc. commit fraud. Manhattan District Attorney Robert Morgenthau said he would not criminally prosecute JP Morgan or Citigroup or their employees for any activities related to Enron. Instead, the banks each will pay $12.5 million to the state of New York and $12.5 million to the city of New York, as well as the cost of the investigation.
The DA said the banks structured $8.3 billion in loans to Enron as complex commodities transactions, which enabled Enron to hide billions of dollars of debt from investors and other parties. Under the settlement with the DA, JP Morgan and Citigroup have agreed to abide by reforms they have initiated regarding procedures related to structured finance, such as the Enron transaction. The banks have also reached agreements with the Federal Reserve Bank of New York, the Office of the Comptroller of Currency, and the New York State Banking Department.
It's so obvious that nobody bothers to say it: all corporate reports will be open to suspicion, and those suspicions will often turn out correct, as long as auditors are paid by the corporations they audit, and carry out that job in a way which aligns their interests with those of corporate management.
Nobody thinks it makes sense to have a fox guard the henhouse. Why should the fox be allowed to hire a jackal as its substitute?
No problem, never more, if we can just make an example of Martha Stewart.
Posted by: lise on July 28, 2003 11:12 AM"Nobody thinks it makes sense to have a fox guard the henhouse. Why should the fox be allowed to hire a jackal as its substitute?"
Posted by: David Lloyd-Jones
Would that it were so. Unfortunately, Wall Street thinks that to be a grand idea, as to the CEO's in charge of the henhouses.
Barry
Posted by: Barry on July 28, 2003 11:26 AMAs the last two years have unfolded, it's no surprise to see investment banks paying huge fines for being an accomplice to fraud. The shame is that the same people who did these deals are emboldened to do it again because they personally did not have to suffer. That was reserved for the stockholders.
I guess investment bankers credibility is somewhere below that of a circus barker or Republican.
Is it a real fine or is it chump change? Let's see. 5% of 8.3 billion is $415 million and fines are only $255 million. I would guess they are still ahead on the deal.
Posted by: bakho on July 28, 2003 11:35 AM>"...Will this make Wall Street less willing to play along the next time..."
"'Play' ALONG" ;?)
Awahhhh haaah haaaaah haah hah ha ha ha...Ahem...GOOD one, Brad.
Posted by: Mike on July 28, 2003 12:08 PMRemember much of the fine will be covered by insurance, then there are write-offs!
Posted by: lise on July 28, 2003 12:13 PMAnd worse, Bakho - there were undoubtedly many more deals where they didn't get caught, so these types of deals are probably very profitable. Also, as far as I can tell, if these companies had just remembered what they were doing, and had better e-mail/verbal discipline, they would probably not have been caught.
Posted by: Barry on July 29, 2003 07:33 AMCosts of doing business. You might get caught and make a smaller profit than expected.