- The Washington Times - Tuesday, March 18, 2003

The Enron Corp. scandal came home to Wall Street yesterday as the Securities and Exchange Commission levied one of its largest penalties to date against Merrill Lynch & Co. to settle charges that it helped Enron manipulate its books.
Wall Street's biggest investment house agreed to pay an $80 million penalty, which is to be mostly returned to shareholders as partial restitution for $60 billion in investment losses, and said it will not participate in stock-manipulation schemes again.
"This action is a message to all who would help a reporting company commit fraud," said SEC Chairman William H. Donaldson, the former head of a top Wall Street firm, announcing his first major enforcement action against former colleagues. The complaint also charges four senior Merrill Lynch executives with aiding Enron's securities fraud.
Mr. Donaldson said the practices targeted in the complaint, helping companies manufacture earnings through complex and devious financial transactions, were widespread on Wall Street during the past decade and must be snuffed out if investors are to regain confidence in the markets.
"We will bring the full weight of our enforcement arsenal" against erring firms and employees, he said. "Our commitment to protect investors demands nothing less."
Two other top investment banks, Citigroup and J.P. Morgan, have also been implicated in investigations of the Enron deals by the SEC, Justice Department and congressional committees in the past year. Mr. Donaldson said more enforcement actions are likely to arise from those investigations.
The SEC is also negotiating a global settlement with state securities regulators to disgorge an additional $1 billion from Wall Street firms and to prohibit the deceptive financial practices that led to a massive wave of corporate scandals last year.
In yesterday's complaint, the SEC charges that Merrill Lynch helped Enron design and carry out two complicated financial transactions that added $60 million to the energy company's fourth-quarter 1999 income statement and increased its 1999 earnings per share to $1.17 from $1.09.
In one of the deals, Merrill Lynch bought an interest in Nigerian barges from Enron with an understanding that Enron would repay it with interest in six months. The deal generated $12 million in book income for Enron.
In the second deal, Merrill Lynch received $17 million in fees for its part in two bogus energy-options contracts that inflated Enron's income by $50 million, the complaint said.
The $80 million in disgorgement, penalties and interest that the SEC is extracting from Merrill Lynch in one of the five largest fines the SEC has imposed reflects not only the fees the investment bank earned in the fraudulent deals, but all the fees it earned after that from Enron, said Stephen M. Cutler, the SEC's enforcement director.
"This is a very strong settlement," he said.
The SEC complaint names four former executives: Vice Chairman Thomas W. Davis, 49; Schuyler Tilney, 47, an investment-banking managing director who directly oversaw corporate-finance matters related to Enron; Robert Furst, 41, a managing director in the investment-banking division; and Daniel Bayly, 55, the global head of the division who later became the firm's chairman of investment banking.
Attorneys for the former executives, three of whom refused to testify and asserted the Fifth Amendment before a Senate committee during the summer, denied any wrongdoing.

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