Now Enron is Challenged Over Last-minute $1bn Lifeline

Federal investigators are examining whether Enron executives may have committed fraud by borrowing $1bn in an eleventh-hour attempt to stave off bankruptcy last year.

According to reports in the US, the justice department and the securities and exchange commission are focusing on loans to two of Enron's pipeline subsidiaries, which were then transferred to the parent company.

The inquiries will put further pressure on the investment banks JP Morgan Chase, which lent $450m in the transactions, and Citigroup, which lent $550m. Both banks were recently grilled at a congressional hearing where they were accused of disguising loans as complicated commodity trades.

A report in the Wall Street Journal also places the focus back firmly on former Enron chief executive Kenneth Lay, who was running the company at the time the loans were agreed. He has argued that he knew little of the offshore special purpose entities that appeared to have benefited former finance chief Andrew Fastow more than anyone else.

The federal energy regulatory commission issued an order last week that the two pipeline companies - Transwestern Pipeline and Northern Natural Gas - explain their dealings with Enron.

The regulated businesses are subject to tougher accounting rules. During an audit, the commission was reportedly told that Enron had demanded that the pipeline businesses take out the loans and not to expect them to be paid back.

An Enron spokesman defended the transactions as "commonplace" and "acceptable practice" and said they were fully disclosed at the time.

The investigators are also said to have uncovered a series of subsidiaries set up to do business with the pipeline companies which could have been used to further redistribute cash. The subsidiaries did not maintain proper records of their dealings with the pipeline firms, it is alleged. The Enron spokesman said it was "fairly common for a parent to draw funds from a subsidiary".