On Friday the Federal Reserve, the Federal Deposit Insurance Corp., the Office of the Comptroller of the Currency, the Office of Thrift Supervision and the Securities and Exchange Commission issued a joint warning to US banks and securities firms to be careful when entering into Enron-type, complicated debt-based financing deals of the kind that ended in large fines for many banks last year. “Financial institutions must conduct their operations in compliance with applicable laws and regulations, and institutions that do not may be subject to enforcement actions by the Agencies and lawsuits by private parties,” the regulators said. The guidance warns banks about “complex structured finance activities” that create transactions driven by particular legal, tax and accounting goals.
In July 2003, Citigroup and J.P. Morgan Chase both paid large fines to settle Securities and Exchange Commission allegations that they helped Enron mislead investors. Citigroup paid $120 million in the settlement, including $19 million to settle allegations it had also helped energy company Dynegy manipulate its books. J.P. Morgan Chase’s settlement included a $135 million fine relating to its deals with Enron. “The events associated with Enron Corp. demonstrate the potential for abusive use of complex structured finance transactions,” said the regulators in their joint statement.