Merrill defends Enron deals

Merrill Lynch yesterday defended its dealings with Enron, the energy firm that fell into bankruptcy amid scandal at the end of last year.

The investment bank faced questions in a Congress hearing as, elsewhere in Washington, President Bush signed the corporate reform bill aimed at stamping out the glut of financial scandals that have shaken Wall Street.

In a pre-hearing statement, Merrill Lynch maintained it had only "limited dealings" with Enron. "Our firm dealt with Enron at arm's length, and made business decisions based on the information that was then available," it said.

Congress members focused on a deal for the sale of three barges in Nigeria used to generate electricity. Enron allegedly asked Merrill Lynch in December 1999 to invest $7m in the barges giving the company's African division a gain on the transaction and allowing it to meet financial targets.

Investigators claim that Enron gave Merrill Lynch the guarantee that it would arrange the resale of the barges within six months.

"It appears that Merrill Lynch, like other financial institutions, knowingly participated in deals that were used to make Enron's financial position appear more robust than it actually was," said senator Carl Levin.

Congressional investigators also presented evidence that Merrill Lynch replaced a research analyst in 1998, John Olson, who had angered Enron by placing its shares on a "neutral" rating.

JP Morgan Chase and Citi group were grilled by Congress last week.

With mid-term elections approaching in November, President Bush's language has become increasingly hard-bitten. He yesterday promised "no more easy money for corporate criminals. Just hard time".

He added: "Free markets are not a jungle in which only the unscrupulous survive, or a financial free-for-all guided only by greed. The law says to every dishonest corporate leader, you'll be exposed and punished. The era of low standards and false profits are over."

The reform bill, which had originally been largely opposed by Republicans, increases the maximum prison term for executives who commit mail or wire fraud from five to 20 years. The bill establishes a new crime of securities fraud with a maximum sentence of 25 years.

It also restricts the consulting work that accounting firms can do, requires top executives to take personal responsibility for the accuracy of the balance sheet and creates new rules to restrict conflicts of interest in banks.