- The Washington Times - Tuesday, July 30, 2002

"No matter what the market does," Senate Governmental Affairs Committee Chairman Joseph Lieberman complained at a February hearing, where he castigated several stock analysts for their deplorable role in the Enron debacle, "analysts just seem to keep saying 'buy.'" Raymond Niles, an analyst at Citigroup's Salomon Smith Barney investment bank, replied, "We were not provided with accurate and complete information." To make his point, Mr. Niles added, "It is now common knowledge that Enron's financial statements … did not represent the company's true financial condition." Yes, and after last week's hearing before Governmental Affairs' Permanent Subcommittee on Investigations, "it is now common knowledge" to use Mr. Niles' words that Citigroup and its Salomon Smith Barney unit were primarily responsible for the obfuscation.

Complex financial arrangements, mostly organized by Citigroup, hid billions of dollars of Enron's debt from prospective investors. Those left holding the bag lost $50 billion in stock value and billions of dollars more from now-worthless Enron-linked bonds marketed by Salomon, in large measure because, to quote Mr. Niles again, they "were not provided with accurate and complete information."

To avoid Enron's eventual bankruptcy after which Citigroup's role in the massive deception would be revealed Robert Rubin, the former Treasury secretary and chairman of Citigroup's executive committee of the board of directors, feverishly sought to prevent credit-rating agencies from downgrading Enron's debt. Having failed to pressure Treasury's undersecretary for domestic finance to intercede with the agencies on Enron's behalf, Mr. Rubin later sought to contact Moody's directly. It is telling that Mr. Rubin's telephone call was arranged by the investment bankers at Salomon, which surprise stood to split nearly $100 million in fees with another bank if Enron's pending bankruptcy-preventing merger with Dynegy were consummated. These fees were above and beyond the $167 million Citigroup raked in for organizing Enron's debt-hiding finance deals and the $61 million in fees Enron paid Salomon for underwriting stocks and bonds.

Mr. Lieberman has rightly complained of the egregious conflict of interest inherent in stock analysts performing a separate role as de facto deal-making investment bankers. No other investment bank generated more fees in this wildly conflicting manner than Salomon Smith Barney. As New York Times reporter Gretchen Morgenson, who won a Pulitzer Prize this year for exposing the scandal, reported two weeks before Enron went bankrupt: "Since 1997, [Salomon Smith Barney] has collected $809 million underwriting telecom stocks and bonds and $178 million providing merger advice, according to Thomson Financial 43 percent more than the fees made by Merrill Lynch, its closest rival in the sector." As Mrs. Morgenson reported last week, Salomon Smith Barney's star telecom analyst, Jack Grubman, who earned more than $20 million per year singing the praises of WorldCom, Global Crossing and Winstar as they relentlessly marched to the bankruptcy graveyard, is now under investigation by the U.S. Attorney's office and the National Association of Securities Dealers.

Given Mr. Rubin's obvious role as Citigroup's fixer in the Enron debacle and his decades of experience as an investment banker, who is better equipped than he to explain to Mr. Lieberman the ways of Wall Street? For equally obvious reasons, Mr. Lieberman refuses to seek Mr. Rubin's testimony. That, too, is a scandal a scandal in which House committee chairmen need not be passive participants.


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