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Jpmorgan chase near enron settlement { July 16 2003 }

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July 16, 2003, 6:23AM

Creditor banks may be near SEC settlement
Copyright 2003 Houston Chronicle

Two major banks tied to a number of questionable Enron Corp. transactions may be close to settlements with the Securities and Exchange Commission and New York City prosecutors.

J.P. Morgan Chase and Citigroup are in the advanced stages of negotiations, according to reports published by the Wall Street Journal and Financial Times on Tuesday.

The Journal says Chase may pay between $100 million and $150 million in fines to the SEC, and up to $25 million to the office of Manhattan District Attorney Robert Morgenthau. The Financial Times quotes a Citigroup executive as saying the bank expects to reach settlements with the SEC and the district attorney during this fiscal quarter.

Bank and SEC officials declined comment on the reports.

Settlement talks between regulators and the banks would hardly be a surprise. Chase reported in June that the SEC is investigating its work with Enron, while Citigroup has long been rumored to be in negotiations. Merrill Lynch & Co., another bank that did business with Enron, agreed to an $80 million settlement with the SEC earlier this year to resolve an investigation into two questionable transactions.

No criminal charges have been filed against Merrill, but four former executives face civil charges from the SEC.

The Chase and Citigroup settlement talks likely relate to transactions the banks helped Enron arrange, called prepays. In these deals, Enron received payment up front for the future delivery of a commodity, such as electricity, oil or natural gas.

A report by court-appointed bankruptcy Examiner Neal Batson has described the transactions as little more than disguised loans because bank employees had verbal guarantees from Enron that they would not lose money and, in most cases, no commodity was delivered.

If settlements are reached, it's likely Chase and Citigroup will be told to change certain business practices and to cooperate with ongoing investigations.

Merrill Lynch has gone to great lengths to cooperate with investigators.

Chase and Citigroup remain entrenched in the pending class-action lawsuits brought by former Enron shareholders and employees. U.S. District Judge Melinda Harmon refused a request by the banks to get out of the lawsuits, and the 5th U.S. Circuit Court of Appeals refused to review a claim by Chase and others that Harmon abused her discretion. The civil trial is scheduled for October 2005, but the parties are undergoing court-ordered mediation.

Citibank and Chase are the largest and second-largest creditors in Enron's mammoth bankruptcy case, with nearly $4 billion and $2 billion in claims against Enron, respectively. The banks have been a central focus of Batson's broad inquiry into wrongdoing at Enron and are expected to be important subjects of a report due to be released July 25.

If Batson finds Chase and Citibank conspired with Enron to cook books, they could see some of their debt subordinated below that of other creditors, potentially costing them hundreds of millions of dollars.

Chronicle reporters Eric Berger and David Ivanovich contributed to this story.

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