FOR IMMEDIATE RELEASE CRM
THREE TOP FORMER MERRILL LYNCH EXECUTIVES CHARGED WITH CONSPIRACY, OBSTRUCTION OF JUSTICE, PERJURY IN ENRON INVESTIGATION
Merrill Lynch Agrees to Cooperate with Enron Investigation, Implement Reforms, with Oversight by Monitor
WASHINGTON, D.C. Assistant Attorney General Christopher Wray of the Criminal Division, Enron Task Force Director Leslie R. Caldwell, and Assistant Director Grant Ashley of the FBI's Criminal Investigative Division announced today that three leading former employees of Merrill Lynch & Co., Inc., have been indicted by a federal grand jury on charges of conspiracy to commit wire fraud and falsify books and records. One of the defendants was also charged with perjury and obstructing a federal investigation into the Enron Corporation's multibillion dollar collapse.
The three-count indictment, returned by a federal grand jury in Houston, Texas, yesterday and unsealed this morning, charges: Daniel Bayly, 56, of Darien, Connecticut, the former head of the Global Investment Banking division at Merrill Lynch; James A. Brown, 51, of Darien, Connecticut, the head of Merrill Lynch's Strategic Asset Lease and Finance group; and Robert S. Furst, 42, of Dallas, Texas, the Enron relationship manager for Merrill Lynch in the investment banking division.
In a separate agreement reached with the Department of Justice, announced
today, Merrill Lynch accepted responsibility for the conduct of its employees.
Merrill Lynch also agreed to cooperate fully with the continuing Enron
investigation and to implement a series of sweeping reforms addressing
the integrity of client and third-party transactions. An independent monitor,
along with an outside auditing firm, will monitor Merrill Lynch's compliance
with these new reforms.
The indictment alleges that Enron and Merrill Lynch engaged in a year-end 1999 deal involving the "parking" of Enron assets with Merrill Lynch. That arrangement allowed Enron to enhance fraudulently the year-end 1999 financial position that it presented to the public and used to pay its executives unwarranted bonuses. The indictment alleges that Bayly, Brown and Furst knowingly participated in this illegal scheme, along with co-conspirators Andrew S. Fastow, Enron's then-chief financial officer, and Daniel Boyle, then-vice president of Global Finance at Enron. Fastow and Boyle were both charged in a May 2003 indictment, and Fastow's case is scheduled for trial in April 2004.
According to the indictment, Enron attempted unsuccessfully in 1999
to sell an interest in electricity-generating power barges moored off
the coast of Nigeria. Enron, through Fastow, Boyle and others, then arranged
for Merrill Lynch to serve as a temporary buyer so that Enron could record
earnings and cash flow in 1999, making Enron appear more profitable than
it was. Merrill Lynch's purchase of the Nigerian barges allowed Enron
to improperly record $12 million in earnings and $28 million in funds
flow in the fourth quarter of 1999. The indictment alleges that Enron
promised Merrill Lynch that it would receive a return of its investment
plus an agreed-upon profit within six months an oral agreement
that was not disclosed in the written contact used by Enron's internal
and external accountants to determine the accounting treatment of the
deal. Specifically, Enron promised in an oral "handshake" side
deal that Merrill Lynch would receive a rate of return of approximately
22 percent, and that Enron would sell the barges to a third party or repurchase
the barges within six months. That agreement meant that Merrill Lynch's
supposed equity investment in the barges was not truly "at risk"
and did not qualify as a sale from which earnings and cash flow could
All three defendants were charged with conspiracy to commit wire fraud
and falsify books and records, and Brown was also charged with perjury
before the Enron Grand Jury and obstruction of the Enron Grand Jury investigation.
Specifically, the indictment alleges that while testifying under oath
before the grand jury in September 2002, Brown falsely stated he was "not
aware of the promise" by Enron to Merrill Lynch regarding the Nigerian
barge investment. The indictment further charges that Brown sought to
obstruct and impede the grand jury by making false statements. The indictment
also alleges that the defendants made false statements regarding the barge
deal when questioned under oath before Congress, the Securities and Exchange
Commission, and a court-appointed bankruptcy examiner.
An indictment contains allegations that a defendant has committed a crime. Every defendant is presumed innocent until and unless proven guilty.
Merrill Lynch & Co., Inc., Agreement
In its agreement with the Department of Justice, Merrill Lynch acknowledges that the Department has developed evidence during its investigation that one or more Merrill Lynch employees may have violated federal criminal law, and accepts responsibility for any such violations.
The reforms agreed to by Merrill Lynch include:
The creation of a new committee, the Special and Structured Products Committee (SSPC), to review all complex structured finance transactions effected by a third party with Merrill Lynch. The committee will be comprised of senior representatives within the company, including representatives from Market Risk, Law and Compliance, and Accounting, Finance, Tax and Credit. The unanimous approval of the SSPC will be required to authorize a transaction.
For a period of 18 months, Merrill Lynch will retain an independent
auditing firm to undertake a review of the processes established by the
committee. Merrill Lynch will also retain an attorney, selected by the
Department of Justice, to review and oversee the work of the auditing
firm and issue periodic reports as to Merrill Lynch's compliance.
The development of a comprehensive training program for all personnel that highlights factors in a transaction that would warrant additional scrutiny. Merrill Lynch employees will be instructed to refer to the SSPC all transactions that would fall under its purview.
Based on Merrill Lynch's acceptance of responsibility, its full cooperation with the Enron investigation, its adoption of a series of significant reforms, and its acceptance of a monitor to oversee the implementation of those reforms, the Department of Justice has agreed not to prosecute Merrill Lynch.
"We are pleased that Merrill Lynch has accepted responsibility,
is cooperating fully and has agreed to enact these important reforms,"
said Assistant Attorney General Wray. "This is the kind of corporate
response that the Department of Justice encourages and, frankly, expects
in the course of a criminal investigation."
The Task Force investigation is continuing.