Citigroup and J.P. Morgan Chase have paid more than $300 million to settle charges that they helped Enron cheat investors. The settlement with the U.S. Securities and Exchange Commission and Manhattan District Attorney Robert Morgenthau ends an 18-month investigation and lets the two largest U.S. banks avoid criminal prosecution for securities fraud.
The investigation alleged that the two banks had helped Enron structured complicated transactions that allowed Enron to hide debt and inflate cash flow. Citigroup and J.P. Morgan Chase are among Enron’s creditors in bankruptcy proceedings, and may as a result of this latest settlement lose their right to recover any of the money they lost. Both banks have vowed to reform their business practices, but neither admitted wrongdoing in the settlement.
“These two cases serve as yet another reminder that you can’t turn a blind eye to the consequences of your actions,” says Stephen Cutler, the SEC’s enforcement director. Under the agreement, J.P. Morgan will pay regulators $135 million, and Citigroup $120 million, including $19 million to settle charges it manipulated Dynegy Inc.’s financial statements. The payments will go to a victim’s fund. In addition to the SEC payments, the banks will each pay another $25 million to be split between New York State and New York City, and pay investigation costs.
This is the fifth Enron settlement announced by the SEC, and more are expected. New York court examiner, Neal Batson, has said there is evidence that Barclays, CIBC, Deutsche Bank and Merrill Lynch may also have engaged in “wrongful conduct” with Enron. Earlier in the year, Citigroup and J.P. Morgan agreed to pay $400 million and $80 million respectively to settle allegations that stock research was warped by investment banking considerations.