- The Washington Times - Wednesday, September 17, 2003

HOUSTON (AP) — Three former Merrill Lynch executives were indicted for fraud yesterday on charges of helping Enron Corp. inflate earnings with a loan the energy trader disguised as a sale.

The criminal charges do not involve Merrill Lynch, which reached a side agreement that would allow the brokerage to avoid any corporate culpability if it implements “a series of sweeping reforms” to improve the integrity of its transactions with clients and third parties.

Daniel Bayly, Robert Furst and James Brown were named in a three-count federal indictment unsealed yesterday in Houston. They were scheduled to appear before a judge later in the day.

All three were charged with conspiracy to commit wire fraud and falsifying books and records.



Mr. Brown was named in two additional counts accusing him of committing perjury before a grand jury investigating the Enron scandal and of obstruction before the same grand jury.

The charges stem from a scheme in which Enron, with Merrill Lynch’s knowledge, is accused of booking a short-term investment from the brokerage firm as profit from the sale of Nigerian barges. The income was then used to make Enron appear to have met earnings targets.

The three agreed to buy the Nigerian barges only because Merrill Lynch “knew the ‘purchase’ was not real,” according to the indictment.

In Washington, meanwhile, the Justice Department announced Merrill Lynch has accepted responsibility for its employees’ conduct and plans to implement reforms. An independent auditor and outside monitor will oversee Merrill Lynch’s compliance with these changes, officials said.

“The American public is entitled to a full accounting of the circumstances behind Enron’s collapse, and the department is committed to prosecuting those who lie or mislead in order to obstruct our investigation,” said Assistant Attorney General Christopher Wray, head of the Justice Department’s criminal division.

Mr. Wray said the government has entered into similar agreements in the past with companies seeking to avoid criminal charges.

Mr. Wray told reporters that Merrill Lynch can avoid any corporate culpability if it lives up to the agreement over the next 18 months. He said the deal could be a model for future prosecutions of corporate wrongdoing.

“There’s a right way and a wrong way to respond when the government comes knocking at your door. Merrill Lynch responded the right way,” Mr. Wray said. “I do think that what happened here to Merrill should be instructive to other companies who find themselves in a criminal investigation.”

Merrill Lynch spokesman Mark Herr said the New York-based company had no comment on the indictments, but said the new internal policies “will help ensure that these kinds of transactions do not occur in the future.”

“We have cooperated fully with this investigation and will continue to do so,” Mr. Herr said.

In Houston, federal prosecutor Andrew Weissmann said the agreement with Merrill Lynch turned the financial institution “into a watchdog of its clients, not just the lapdog, or even worse, a conspirator.”

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