- The Washington Times - Tuesday, April 9, 2002

Robert E. Rubin, the former Treasury secretary and current vice chairman of Citigroup Inc., is portrayed in the latest Enron lawsuit as trying to protect the bank's extensive investments in Enron Corp. by orchestrating a bailout for the energy giant in the fall.
Mr. Rubin, who was lauded as one of the best Treasury secretaries in history when he left the Clinton administration in May 1999, first tried to get the Treasury Department to intervene in early November to prevent a devastating downgrade of Enron by Wall Street's credit-rating agencies.
His overture to Treasury Undersecretary Peter Fisher to mediate a creditor bailout, perhaps like the one Mr. Rubin and Mr. Fisher helped engineer for the failing Long Term Capital Management hedge fund in 1998, was spurned, Treasury officials said.
At the same time, Treasury Secretary Paul H. O'Neill rebuffed a similar plea for intervention from Enron Chairman Kenneth L. Lay. Mr. Lay had cultivated a relationship with Mr. Rubin when he was at the Treasury and appears to have sought his assistance.
Having failed in Washington, Mr. Rubin in late November tried to use his leverage on Wall Street to pressure the leading credit agency, Moody's Investors Service, not to downgrade Enron's rating to junk status, according to an amended complaint filed yesterday by thousands of Enron shareholders in the U.S. District Court in Houston.
Moody's also rejected Mr. Rubin's pleas and issued the downgrade that plunged the company into bankruptcy on Dec. 2, the lawsuit says.
A spokeswoman for Citigroup said the investment bank spoke with Moody's about Enron and may have tried to patch Mr. Rubin in on the call but that he never connected or actually spoke to anyone at Moody's.
A Moody's official testified last month that Mr. Rubin, who is not a defendant in the lawsuit, called the agency.
The lawsuit contends that Mr. Rubin and Citigroup, with eight other Wall Street firms and two Enron law firms, had inside knowledge about Enron's questionable finances and colluded with the company to deceive investors to protect their billions of dollars of Enron investments.
Mr. Rubin and William Harrison, the chairman of J.P. Morgan, in particular sought leniency from the credit agencies because they were desperately trying to arrange an eleventh-hour merger between Enron and Dynegy Inc. that might have saved the company and earned them $90 million in fees, the lawsuit contends.
"These prestigious banks and law firms used their skills and professional reputation to help Enron executives shore up the company's stock price and create a false appearance of financial strength and profitability which fooled the public into investing billions of dollars," said James Holst, general counsel for the lead plaintiff, the University of California's pension fund.
One bank spokesman said the charges are "creative" and noted that the massive 485-page complaint includes a copyright notice on the front page that describes the contents as "creative work."
Some analysts view the lawsuit as a cynical attempt by investors to reach into the "deep pockets" of the investment houses and law firms now that Enron is bankrupt and Arthur Andersen, its auditor named earlier in the lawsuit, is rapidly losing any financial ability to pay. Investors are seeking to recoup $23 billion in stock losses.
Andersen in February offered to pay $750 million to settle the lawsuit, but an exodus of major clients in the last month forced it last week to cut that offer to $300 million.
"There are many ethical issues, but I'm not sure if they actually have a case" against Wall Street, said Kevin Jackson, associate professor of Business Law at Fordham University's Law School. "It is interesting that anyone who had anything to do with Enron is becoming a co-conspirator."
Franklin B. Velie, a former federal prosecutor and partner at the law firm Salans, said it is "really hard to sue lawyers and investment bankers" under securities-fraud statutes.
"You have to prove that a defendant was actually part of the fraud" and was not just negligent, he said.
The lawsuit reveals some previously undisclosed facts about Enron's secret dealings with the investment banks, including the banks' extensive involvement in setting up and funding the off-book partnerships that are at the center of a federal investigation.
The complaint says, for example, that Citigroup or some of its executives were allowed to invest $15 million in "the very lucrative" LJM2 partnership "as a reward for Citigroup's participation in the scheme" to use the partnership to conceal debt and inflate profits.
In addition to providing Enron with $4 billion in loans in the months before its bankruptcy filing, Citigroup lent Enron $2.4 billion disguised as pre-paid swaps that were channeled through a Citigroup subsidiary in the Cayman Islands, the complaint says.
"Keeping Enron's stock price inflated was important to Citigroup," the lawsuit said, "as it knew that if the stock price fell below certain trigger prices," Enron would have to issue millions of additional shares to the partnerships, jeopardizing its credit rating and precipitating bankruptcy.

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