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Last Updated: Tuesday, 29 July, 2003, 04:49 GMT 05:49 UK
US banks fined over Enron
Enron sign at Enron's former headquarters in Houston, Texas
Enron became a byword for sleaze
Two Wall Street investment banks have agreed to pay fines totalling almost $300m to settle allegations that they helped bankrupt energy firm Enron to commit fraud.

The two banks, JP Morgan Chase and Citigroup, stood accused by the US financial watchdog, the Securities and Exchange Commission (SEC), of helping Enron cover up its financial weakness

"Each institution helped Enron mislead its investors by characterising what were essentially loan proceeds as cash from operating activities," the SEC said.

Also on Monday, the bankruptcy examiner working on Enron's restructuring filed a report on Monday saying a $5bn claim by six banks including both JP Morgan and Citigroup on the stricken company might might be pushed to the back of the queue.

In a report to the bankruptcy court, the examiner said he had evidence that the banks were well aware they were lending money for "wrongful conduct" which would cheat investors.

Manhattan case

JP Morgan Chase is to pay the SEC $135m, while Citigroup agreed a settlement of $120m - although that figure includes $19m to settle a case involving another energy firm caught manipulating energy markets, Dynergy.

Both banks have also agreed to pay at least $25m each to settle a separate investigation by the Manhattan District Attorney, Robert Morgenthau.

In both cases, the settlement is dwarfed by the banks' net worth and earnings. JP Morgan's most recent three-monthly profits were $1.83bn, while Citigroup's amounted to $4.3bn.

Shares in both rose following the announcement.

Neither bank has admitted any wrongdoing and their acceptance of the SEC's settlement terms did not involve any admission of guilt.

SEC enforcement chief Stephen Cutler said firms violated federal laws if they knew "or had reason to know" that they were helping a company mislead its investors.

Landmark scandal

Enron filed for bankruptcy protection in late 2001 to gain protection from its creditors after admitting to a huge hole in its accounts.

Enron turned out to be the first of a wave of similar accounting fraud cases which shattered investor confidence and sent stock markets nosediving downwards last year.

The SEC said money from the settlement would go mostly to the victims of Enron's fraud.

However, Enron's creditors will only receive a portion of what they were owed under proposals the firm presented to the bankruptcy court.

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