Citigroup Inc and J.P. Morgan Chase & Co helped Enron Corp hide billions of dollars in debt with disguised loans and other accounting gimmicks, says a report by a federal bankruptcy examiner investigating whether the banks are responsible for investor losses.
The banks, the two largest in the US, were singled out in the report for playing "a significant role" in the deception that led to Enron's collapse.
Neal Batson, an Atlanta lawyer appointed by the Justice Department to study the energy company's finances, said the banks were complicit in a technique that let Enron report US$10.2 billion in debt on Dec. 31, 2000, when it actually owed US$22.1 billion.
"The real question is did the banks know that Enron was making misleading financial statements to investors" or were they careless, said Michael Simons, a St. Johns University law professor.
Deliberately taking part in deception would expose the banks to criminal charges as well as civil damages, he said.
Batson's findings may provide ammunition to investors who have sued the banks and other defendants for more than US$25 billion in damages.
The examiner will issue another report in June that will examine the liability of the banks, as well as law firms and accountants that advised Enron.
"In Citi's transactions with Enron, Citi relied on Enron, its accountants and advisers to report these transactions properly," said Christina Pretto, a Citigroup spokeswoman, when asked to comment on the Batson report.
Karen Denne, an Enron spokeswoman, and J.P. Morgan spokeswoman Kristin Lemkau declined to comment.
Citigroup and J.P. Morgan are also Enron's largest creditors in the bankruptcy case before Judge Arthur Gonzalez in New York, putting them in the position of seeking a share of the energy company's remaining assets.
Citigroup has filed more than US$4.7 billion in claims and J.P. Morgan is owed more than US$1.9 billion, court papers show. The banks may lose some or all of their bankruptcy claims if it's proved they knowingly aided fraud.
Each bank has set aside about US$900 million to cover fines or potential liability from shareholder suits.
Batson's report, a 2,147-page document made public on Wed-nesday, provides the most comprehensive account yet of the dealings that helped Enron rapidly grow to be the seventh-largest company in the U.S. by sales and ultimately led to a US$68 billion loss of market value and bankruptcy.
Batson's report says Citibank and J.P. Morgan helped Enron use a variety of transactions known as prepays, off-books partnerships, share trusts and minority-interest financing to improve the com-pany's reported earnings.
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