More Pressure on Enron Banks
Taking aim at allegedly deceptive tax and accounting strategies sold by big banks to corporate clients, a senior U.S. senator was expected to call for tighter regulation of a hot Wall Street growth area known as “structured finance.”
At a public hearing set for Wednesday, Sen. Carl Levin (D.-Mich.) was expected to propose that the Securities and Exchange Commission and bank regulators work together to deter banks from selling questionable structured finance strategies, a Levin aide said.
Under present regulation, such strategies slip between the cracks of the SEC’s oversight of financial statements and bank regulators’ focus on capital adequacy, aides said.
Investigators working for Levin’s Permanent Subcommittee on Investigations charged Monday that Citigroup Inc. and J.P. Morgan Chase & Co. -- both using structured finance-style deals -- helped Enron Corp. hide debt and pad profit in 2000 and 2001.
Three of the deals -- known as Sundance, Bacchus and Fishtail -- were complex accounting transactions, whereas a fourth known as Slapshot was a Canadian tax scam, said investigators for the subcommittee.
“By concocting elaborate schemes of so-called structured finance with no legitimate business purpose other than tax and accounting manipulation, Citigroup and J.P. Morgan Chase helped Enron deceive the investing public,” said Levin, ranking Democrat on the subcommittee, in a statement.
Officials from Citigroup and J.P. Morgan were set to testify at the hearing, as well as regulators from the SEC, the Federal Reserve and the Office of the Comptroller of the Currency.
Responding to the subcommittee’s allegations concerning the four Enron-related deals, both Citigroup and J.P. Morgan said that today -- after a year of scandals that have hammered Wall Street -- that they would not engage in such transactions.
Citigroup said in a statement: “Today, Citigroup would not approve the transactions that have been under review.
“Under a new policy Citigroup initiated in August, no such financing will be approved without meaningful disclosure of its impact on a company’s financial condition.”
Levin said the three accounting deals “were nothing more than sham contrivances that used secret agreements to make Enron look more financially healthy than it really was, violating accounting standards.”
Levin said the Slapshot transaction was “a tax scam, designed and peddled by Chase to Enron and other companies.”
On the Slapshot deal, J.P. Morgan Chase spokeswoman Kristin Lemkau said: “Each country has its own tax law. We were advised by two Canadian law firms that this was legal and appropriate under Canadian tax laws. While we don’t think we did anything illegal or unethical, from the standpoint of reputation risk, we would not do this transaction today.”
Sources close to the subcommittee said lawmakers do not view numerous post-Enron legislative and rule-making initiatives underway at the SEC and elsewhere as adequate to stem alleged abuse of structured finance.
