Senator cites Merrill role in 'deception'
By Carrie Johnson
Washington Post
WASHINGTON — An official at Merrill Lynch & Co. asked whether the firm would suffer a "reputational risk" if it helped "aid/abet" Enron Corp. to sweeten its books by entering into a $7 million deal, according to documents presented at a Senate hearing yesterday.
Bloomberg News Service
The executive, Jim Brown, scrawled the question on a fax cover sheet in December 1999, just days before Merrill agreed to buy three Nigerian barges from Enron. The deal allowed Enron to post a $12 million gain at the end of the year, according to memos and e-mails obtained by congressional investigators.
Robert Furst, left, former Merrill Lynch & Co. managing director, and Schuyler Tilney, head of energy investment banking at Merrill Lynch, took the oath before testifying at yesterday's Senate investigations subcommittee hearing.
Within six months, Merrill had sold the barges to a private partnership run by Enron's chief financial officer, Andrew S. Fastow, for a $775,000 profit.
Federal prosecutors and Congress are examining the deal to determine whether Enron guaranteed it would take the barges from Merrill within a certain time frame and at a certain price — which would mean that the deal should have been called a loan rather than a sale, according to Sen. Carl Levin, D-Mich., chairman of the Senate panel holding the hearing.
A Merrill spokesman told senators that the firm acted properly in all its dealings with Enron and that it fully vetted the barge deal and other transactions. G. Kelly Martin, a senior vice president at Merrill, said that Brown's questions must have been assuaged for Merrill to have gone forward with the deals. Martin said Enron alone is responsible for how it handled the transaction on its books.
"Merrill Lynch strongly believes that our limited dealings with Enron were appropriate and proper, based on what we knew at the time," Martin said.
"At no time did we engage in transactions we thought were improper."
Merrill's relationship with Enron was the focus of the latest in a series of hearings into Enron's collapse by the Senate Governmental Affairs Committee's permanent subcommittee on investigations.
Senators sharply criticized Merrill for contradicting documents that investigators had gathered from the firm's own files, including one internal 1999 communication that called the Nigerian barge deal "the most unusual deal of the week" and said it was a " 'relationship' loan."
The Merrill report said, "The transaction will allow Enron to move assets off balance sheet and book future cash flows currently as 1999 earnings."
That, Levin said, "was a deception" in Enron's financial statement and "Merrill Lynch was a participant in that deception."
Senators also took aim at the independence of Merrill's research reports, asking why research analyst John Olson left Merrill a few months after Enron executives complained about his low rating of Enron stock. Martin said Olson's departure was "not in any way" related to the complaints.
"Our research process is extremely rigorous," Martin said. "It is separate from the rest of the firm.
Merrill paid $100 million to settle claims about the independence of its research by New York Attorney General Eliot Spitzer earlier this year. The firm did not admit wrongdoing.
