Man Without Qualities

Thursday, February 07, 2002

Tess of the Baskervilles! (or, the Creditors That Didn't Bark or Bite!)

It is a federal felony to use deliberate misrepresentations to obtain funds as credit from a national bank. Yet we hear no news that either Citibank or JP Morgan/Chase is calling for the head of anyone at Enron, even though both of these banks claim to have big exposure in that bankruptcy.

The reason neither of those banks is outraged is most likely because they received no misrepresentation from Enron. Virtually all bank credit agreements include provisions allowing the bank to review, even audit, a borrower at almost any time. So both Citibank and JP Morgan/Chase had the authority to obtain whatever information they felt they needed from Enron. The banks had more than enough muscle to enforce these disclosure provisions simply by threatening to pull these large loans. No financial statements or devices sanctioned by Arthur Andersen could have stopped these banks. Further, each of these banks has a large department of clever employees who do nothing all day but create complicated "off balance sheet" financial products that the banks sell to their clients - financial products which employ all of the considerations used by Enron in its alleged irregularities. So there was no lack of expertise on the banks' parts.

Means, motive and muscle. The simple conclusion is that both Citibank and JP Morgan/Chase probably knew all about Enron's accounting and alleged off balance sheet chicanery.

The even more disturbing likelihood is that Robert Rubin (a top official at Citigroup, which owns Citibank) probably personally knew all about Enron's problems at the very time he called his contact in the Bush administration to request Federal intervention to shore up Enron. It does not appear that Mr. Rubin shared any of his information with the federal government at the time he asked for its help. Mr. Rubin appears to have some hefty explaining to do here.

But the curious connections between Enron and Citibank don't end there. Enron won waivers from provisions of the both Investment Company Act and the Public Utilities Holding Company Act that would have prevented Enron from shifting debt off its books and would have barred executives from investing in partnerships affiliated with Enron. Those exemptions reportedly enabled Enron to engage in the very devices that Enron's critics now say contributed to Enron's rise and startling collapse.

Those waivers were granted by the Securities and Exchage Commission in 1997 during the Clinton administration.

The very SEC officials responsible for granting those waivers are now both partners at Shearman & Sterling - which for decades just happens to be Citibank's principle law firm.

Comments: Post a Comment