Banks pay for Enron fallout

JP Morgan Chase and Citigroup, two of Wall Street's leading investment banks, yesterday agreed to pay a combined $255m (£157m) to settle charges that they helped Enron, the bankrupt energy company, to commit fraud.

The settlement closes another chapter in the Enron saga and regulators hope it will go some way toward restoring the confidence in Wall Street which has been eroded by 18 months of scandals.

Andrew Fastow, the former finance chief at Enron who faces multiple fraud charges, was due back in court in Houston yesterday to discuss trial dates, currently scheduled for January.

A total of nine former Enron executives have been indicted.

Yesterday's settlement with US financial watchdog the securities and exchange commission and the Manhattan district attorney, Robert Morgenthau, was for claims that the banks helped disguise loans as income from trading to make Enron appear more profitable than it was and to hide debt.

JP Morgan is paying $135m and Citigroup $120m, with the proceeds going into a fund for fraud victims. Neither company admitted liability or any wrongdoing. A small part of the Citigroup penalty related to similar charges stemming from its work with a separate energy company, Dynegy.

The banks are not in the clear yet. They still face private shareholder lawsuits and a separate report on the banks' role, by a bankruptcy court-appointed examiner, was due to be published last night.

Stephen Cutler, director of the SEC's enforcement division, said: "These two cases serve as yet another reminder that you can't turn a blind eye to the consequences of your actions - if you know or have reason to know that you are helping a company mislead its investors, you are in violation of the federal securities laws."

Enron filed for bankruptcy in late 2001 and sparked a wave of corporate failures and allegations of financial misdeeds that stunned investors. It emerged that Houston-based Enron had been hiding debts and inflating revenues through a series of off-balance sheet ventures.

Merrill Lynch in February agreed to pay $80m to settle an SEC investigation into two Enron deals involving power-generating barges in Nigeria. Merrill did not accept any liability in the settlement and said the agreement concluded the SEC's investigations into its relationship with bankrupt company.

Mr Morgenthau yesterday said he would not file criminal charges against JP Morgan or Citigroup or any of their employees for activities relating to Enron, as a part of the agreed settlement.