 |
Home | Previous Page | |
|
||
 |
|
|
|
||
 |
|
|
|
|
|||||||||||||||
|
|
|||||||||||||||
|
|
UNITED STATES DISTRICT COURT
Plaintiff Securities and Exchange Commission (the "Commission") for its Complaint alleges as follows: SUMMARY1. Merrill Lynch and its senior executives Robert S. Furst, Schuyler M. Tilney, Daniel H. Bayly, and Thomas W. Davis, helped their client, Enron Corp., commit securities fraud. In December 1999, at Enron's request, Merrill Lynch entered into two fraudulent year-end transactions that Merrill Lynch knew were designed to improve Enron's financial picture. As a result of these transactions, Enron fraudulently added $60 million to its fourth quarter 1999 income, a 30% improvement in net income. This allowed Enron to meet analysts' expectations about its performance, increase its earnings per share, improve its stock price, and boost its bonus pool for senior executives. For aiding Enron, Merrill Lynch earned millions of dollars in fees and believed Enron would continue to award it lucrative business in the future. 2. Merrill Lynch and Enron completed the two fraudulent transactions in the last days of December, 1999. In the first, an asset parking arrangement, Enron purportedly "sold" an interest in Nigerian energy barges to Merrill Lynch. In fact, the risk of ownership never passed to Merrill Lynch. Instead, this was in effect a short term loan and Merrill Lynch earned a specified rate of return. Pursuant to a side deal between Enron and Merrill Lynch, Enron took Merrill Lynch out of the transaction in June 2000. Enron reported, as Merrill Lynch knew it would, $12 million in income from this sham "sale." In the second fraudulent transaction, Enron and Merrill Lynch entered into two energy option contracts that were designed to substantially cancel each other out. Enron agreed to pay Merrill Lynch a $17 million dollar fee for participating in what was essentially a risk-free transaction. Enron reported, as Merrill Lynch knew it would, $50 million in income from this sham energy trade. 3. Based on their substantial assistance to Enron, defendants aided and abetted Enron's violations of the federal securities laws. The Commission requests that this Court permanently enjoin defendants from violating the federal securities laws cited herein, bar defendants Bayly, Davis, Furst, and Tilney from acting as officers or directors of any public company, order Merrill Lynch to disgorge all ill-gotten gains, order all defendants to pay civil penalties, and order such other and further relief as the Court may deem appropriate. JURISDICTION AND VENUE4. The Court has jurisdiction over this action pursuant to Sections 21(d), 21(e), and 27 of the Exchange Act. 5. Venue lies in this District pursuant to Section 27 of the Exchange Act [15 U.S.C. ' 78aa] because certain acts or transactions constituting the violations occurred in this District. 6. In connection with the acts, practices, and courses of business alleged herein, defendants, directly or indirectly, made use of the means and instruments of transportation and communication in interstate commerce, and of the mails and of the facilities of a national securities exchange. 7. Defendants, unless restrained and enjoined by this Court, will continue to engage in transactions, acts, practices, and courses of business as set forth in this Complaint or in similar illegal acts and practices. DEFENDANTS8. Merrill Lynch & Co., Inc., is a Delaware corporation with headquarters in New York, New York and offices serving corporate and institutional clients nationwide, including Houston, Texas. At all relevant times, Merrill Lynch's common stock was registered with the SEC pursuant to Section 12(b) of the Exchange Act and was listed for trading on the New York Stock Exchange (MER). 9. Thomas W. Davis, 49, resides in Scarsdale, New York. Davis was an Executive Vice President and the Global Head of Merrill Lynch's Corporate and Institutional Client Group from 1998 until October 2001, when he became Vice Chairman of Private Equity and Research. Davis was a member of Merrill Lynch's senior executive management committees from 1997 until 2002. Davis was terminated by Merrill Lynch on September 18, 2002, after he asserted his Fifth Amendment rights in Commission testimony on September 10, 2002. 10. Daniel H. Bayly, 55, resides in Darien, Connecticut. Bayly was Global Head of Merrill Lynch's Investment Banking division from 1999 until 2001, when he became Chairman of Investment Banking. Bayly retired from Merrill Lynch in the Fall of 2002. Bayly initially testified before the Commission on July 10, 2002 but later declined to provide additional testimony requested by the Commission. 11. Schuyler M. Tilney, 47, resides in Houston, Texas. Tilney was head of the Houston, Texas office of Merrill Lynch's Global Energy & Power division within Investment Banking until 2001, when he was promoted to Global Head of the Energy and Power Group. Tilney was placed on administrative leave by Merrill Lynch in July 2002, and terminated on September 18, 2002. He asserted his Fifth Amendment rights in Commission testimony on July 31, 2002. 12. Robert S. Furst, 41, resides in Dallas, Texas. Furst was a Managing Director of Merrill Lynch and, during the relevant period in 1999 and 2000, was the Enron relationship manager for the investment bank. Furst resigned from Merrill Lynch in 2001. Furst asserted his Fifth Amendment rights in Commission testimony on August 21, 2002. OTHER ENTITIES INVOLVED13. Enron Corp. is an Oregon corporation with its principal place of business in Houston, Texas. During the relevant time period, the common stock of Enron was registered with the Commission pursuant to Section 12(b) of the Exchange Act and traded on the New York Stock Exchange. In 2000, Enron raised millions in the public debt and equity markets. Among other operations, Enron was the nation's largest natural gas and electric marketer with reported annual revenue of more than $150 billion. Enron rose to number seven on the Fortune 500 list of companies. By December 2, 2001, when it filed for bankruptcy, Enron's stock price had dropped in less than a year from more than $80 per share to less than $1. FACTUAL ALLEGATIONSEarnings Pressure At Enron, Year-End 199914. In late 1999, Enron faced shortfalls in earnings. Failure to meet earnings targets for year end 1999 might have had a negative impact on Enron's stock price and the compensation of Enron's senior management. Enron sought to make up the earnings shortfalls. As part of this effort, Enron devised two transactions that had the purpose and effect of fraudulently inflating Enron's reported financial performance. Seeking a partner to assist it in this endeavor, Enron approached Merrill Lynch in December 1999 with the two fraudulent earnings schemes. The Nigerian Barge Transaction B Asset Parking15. In December 1999, defendants knowingly rendered substantial assistance to Enron in a fraudulent asset parking arrangement. This involved a "sale" of an interest in Nigerian barges that, as defendants knew, would allow Enron to record $12 million in earnings in the fourth quarter of 1999. The sale was a sham. The risks and rewards of ownership in the barges never passed to Merrill Lynch because Enron's CFO Andrew Fastow guaranteed Merrill Lynch that it would not lose money and that it would be taken out of the deal within six months. Enron Approaches Defendants With Barge Transaction16. In mid-December 1999, Enron's treasurer contacted Furst about buying an interest in the Nigerian barge project. In the transaction, a Merrill Lynch special purpose entity ("SPE") would purchase stock in an Enron subsidiary called Enron Nigeria Barge Limited for $28 million. Ownership of the stock purportedly would entitle Merrill Lynch to receive certain future revenues from sales of power to Nigeria under a Power Purchase Agreement. Enron would provide $21 million of the purchase price to the Merrill Lynch SPE in the form of a loan that was non-recourse to Merrill Lynch. Thus, Merrill Lynch was asked to provide only $7 million in cash for the deal. 17. At the time Enron presented the transaction to defendants, there were significant questions about the value of the barge investment. The barges were still under construction and not yet operational in Nigeria. Various Nigerian government approvals had not been obtained, and Nigeria had not yet secured a $30 million Letter of Credit that was to serve as a guarantee for the government's performance under the Power Purchase Agreement. Further, given the short notice to defendants, they were unable to perform due diligence on the barge transaction. The transaction was unusual for the group at Merrill Lynch that would handle the transaction because, among other things, the group generally worked with domestic assets and structured lease transactions, and had no experience in dealing with Nigeria or Africa. 18. After discussing the transaction with Fastow and Enron's treasurer, Furst memorialized Enron's request in a memorandum dated December 21, 1999 to Bayly, Tilney, and others at Merrill Lynch. The memorandum stated that the transaction would allow Enron to book $10 million in earnings [later corrected to $12 million], and had to close by December 31, 1999. The memorandum also stated that Enron believed Merrill Lynch's "hold" would be for less than six months and the investment would have a 22.5% return (these terms were deliberately omitted from the operative transaction documents because they would have revealed the true nature of the transaction). The memorandum also noted that the transaction would permit Enron to record $28 million in cash flow. Furst strongly recommended that Merrill Lynch take part in the transaction because Enron was an important client. 19. In addition to the December 21, 1999 Furst memorandum, a document entitled "Appropriation Request" relating to the barge transaction was circulated within Merrill Lynch. This document also made clear that Enron and Merrill Lynch contemplated a side deal in which Merrill Lynch would be taken out of the transaction within six months at a specified rate of return. The document noted that the transaction (a) would allow Enron to book $12 million in earnings; (b) had to close by December 31, 1999; (c) would generate a return of $250,000 plus 15% per annum or a flat 22.5% per annum; and (d) required a $7 million financial commitment by Merrill Lynch. The document stated that Enron had "assured us that we will be taken out of our investment within six months" and that Enron would "facilitate" Merrill Lynch's "exit from the transaction with third party investors." The document added that Bayly would call senior management at Enron "confirming this commitment to guaranty [sic] the ML takeout within six months." Finally, the document stated that Enron had "strongly requested ML to enter into this transaction," that Enron had paid Merrill Lynch approximately $40 million in fees in 1999, and was expected to do so again in 2000. 20. After the transaction documents circulated, various Merrill Lynch executives met and conferred regarding the transaction. Contemporaneous notes of individuals at Merrill Lynch with knowledge of the transaction referred to it as a $7 million "handshake" loan to Enron that would be repaid within six months. Merrill Lynch Reviews and Approves Barge Deal21. Furst and Tilney also began the process of getting approval within Merrill Lynch by talking to an executive who was the head of Merrill Lynch's structured leasing group. The Merrill Lynch executive told Furst he was not interested in the transaction because it was not a lease, it did not involve domestic assets, and his group had no experience in dealing with Nigeria or Africa. Tilney asked the Merrill Lynch executive to reconsider because Enron was an important client of Merrill Lynch and the transaction was very important to Enron. The Merrill Lynch executive agreed to run the transaction further up the chain of command at Merrill Lynch. 22. As part of this process, Merrill Lynch's "Debt Markets Commitment Committee" (DMCC) reviewed the transaction. In preparation for a meeting of the DMCC, an interoffice memorandum, dated December 22, 1999, was prepared and addressed to the committee. The document stated in part, "Enron will facilitate our exit from the transaction with third party investors. Dan Bayly will have a conference call with senior management of Enron confirming this commitment." 23. Prior to the DMCC meeting, Tilney and Furst called Bayly to discuss further the terms of the proposed transaction, as described above. The parties also discussed the fact that the transaction was very important to Enron. 24. At the same time, there was some dissension within Merrill Lynch about the transaction, including an internal document expressing concern that Merrill Lynch could be viewed as aiding and abetting Enron's fraudulent manipulation of its income statement. 25. The DMCC met on or about December 22, 1999. Furst presented the terms of the transaction, as outlined above, and emphasized the transaction was for an important Merrill Lynch client. Again, concerns were raised by certain individuals at Merrill Lynch about the propriety of the transaction, including whether Enron could properly treat the transaction as a sale, and whether Merrill Lynch could be viewed as aiding and abetting Enron's fraudulent manipulation of its income statement. The DMCC discussed the fact that Bayly was expected to call Fastow to make sure Enron appreciated Merrill Lynch's assistance, to confirm Enron's take-out, and to receive assurances of future business from Enron. The DMCC concluded it did not have authority to approve the transaction and that such approval would have to be given by higher authority, specifically Bayly or Davis. 26. Following the DMCC meeting, Bayly, Davis and Merrill Lynch executives who attended the DMCC meeting met to consider the transaction. The parties discussed, and Davis was fully aware, of the terms of the transaction, including that: (a) Merrill Lynch would purchase its interest in the Nigerian barges for $28 million; of this amount, $21 million would be provided by Enron to Merrill Lynch in the form of a loan, and Merrill Lynch would pay only $7 million in cash; (b) the transaction would allow Enron to book $12 million in year-end earnings, and for this reason had to close by December 31, 1999; and (c) Enron agreed to take out Merrill Lynch from the transaction within six months at a specified rate of return, 22.5%. Davis, Bayly, and others also discussed the fact that the transaction was very important to Enron. Davis knew that Enron was an important client of Merrill Lynch and that Enron had paid Merrill Lynch millions in fees in 1999 and was expected to do so again in 2000. Davis was also made aware by Bayly and others that there were concerns within Merrill Lynch about the propriety of the transaction, including the concerns raised before the DMCC. Davis was also informed by Bayly and others that the DMCC had not resolved these issues, had not approved the transaction, and that his approval would be necessary to enter into the transaction. Bayly, Davis, and others discussed the fact that Bayly was going to contact Fastow to confirm Enron's commitment to take Merrill out of the transaction. Davis instructed Bayly to make this call. After considering all of these facts, and knowing the transaction was a sham sale designed to allow Enron to record earnings, Davis approved the transaction. Davis and Bayly understood that it would not be necessary for Bayly to consult with Davis again to close the transaction once Bayly confirmed Enron's take-out commitment with Fastow. 27. Bayly called Fastow on or about December 23, 1999 to confirm the agreed upon take-out. Tilney and Furst, among others, participated in the call. These defendants also wanted to make sure that Fastow understood that Merrill Lynch was doing the transaction as a favor to Enron, and that Merrill Lynch would not be participating in the transaction unless it were trying to improve its business relationship with Enron. Fastow assured Merrill Lynch that it would not lose money and would be taken out of the deal within six months. Fastow stated that this guarantee could not be in writing as it would defeat Enron's ability to recognize a gain on the sale. After this call, Bayly directed others at Merrill Lynch to close the transaction with Enron. Enron Records Fraudulent Earnings28. Merrill Lynch invested $7 million, and Enron financed the remainder of the deal with a $21 million loan that was non-recourse to Merrill Lynch. Merrill Lynch never paid any interest on the loan. Defendants did not actively monitor the investment. 29. Enron recorded approximately $12 million of fictitious earnings in the fourth quarter of 1999 from the sale of the barge interest. Course of Conduct Confirms Take-Out30. Six months later, consistent with the guarantee given by Enron to Merrill Lynch, Fastow arranged for Merrill Lynch to be bought out of its interest in the barges. Internal Enron and Merrill Lynch documents dated in the May-June 2000 time period confirm that Enron was obligated to take out Merrill Lynch by June 2000. 31. For example, a May 2000 Enron e-mail between Enron executives knowledgeable about the barge transaction states: "As we have discussed, should a strategic buyer not materialize by June 30, 2000, [ENRON] will have to take out ML and the investment in the barges will be placed on balance sheet. This will not only have income implications but require a level of damage control with AA [Arthur Andersen]. As you know, ML's decision to purchase the equity was based solely on personal assurances by Enron senior management to ML's Vice Chairman [Dan Bayly] that the transaction would not go beyond June 30, 2000." 32. In a later e-mail in the same e-mail chain, another Enron executive wrote to reiterate Enron's obligation to Merrill Lynch: "[t]o be clear, ENE [Enron] is obligated to get Merrill Lynch out of the deal on or before June 30. We have no ability to roll structure." In response, another executive wrote: "We have always understood that is required." 33. Another internal Enron e-mail confirms the take-out: "[t] he deal with ML was to get them a total annualized return of roughly 20%" and that "ML is expecting to receive a minimum of $7.525 million when they sell there [sic] equity on June 30, 2000." 34. In mid-June 2000, Furst and others at Merrill Lynch prepared a draft letter to Enron in anticipation of the agreed upon take-out. The letter referred to the barge transaction and stated: "Enron has agreed to purchase the [Enron] shares from Ebarge [the Merrill Lynch SPE] by June 30, 2000, for a purchase price . . . of $7,510,976.55." The letter also provided Enron wiring instructions and indicated the amount should be paid "on or before June 30, 2000." Merrill Lynch did not have to send the letter because on or about June 14, 2000, an Enron executive contacted Merrill Lynch and said that Enron had found a buyer for Merrill Lynch's interest for the "agreed upon amount." 35. Enron arranged for LJM2, a partnership operated by Fastow, to buy Merrill Lynch's interest. On June 29, 2000, LJM2 bought Merrill Lynch's interest for $7,525,000. The price was not the product of negotiation. Rather, the price reflected a $525,000 premium over Merrill Lynch's original investment to account for the rate of return promised to Merrill Lynch. As agreed, Merrill Lynch earned approximately a 22% annualized return on its $7 million investment. LJM2 documents confirm that it made the purchase to fulfill Fastow's guarantee. The Energy Trade Transaction36. Merrill Lynch, Furst, and Tilney also assisted Enron in another fraudulent year-end transaction in December 1999. In this transaction, Enron agreed to pay Merrill Lynch a $17 million fee to enter into a virtually offsetting energy trade. Merrill Lynch, Furst, and Tilney knew, among other things, that the transaction: (a) was essentially risk free to Merrill Lynch, and (b) had the purpose and effect of inflating Enron's reported income by approximately $50 million in 1999, and that such earnings were necessary for Enron to meet earnings targets and award bonuses to senior management. Merrill Lynch, Furst, and Tilney also knew that Enron was contemplating unwinding the transaction after obtaining its earnings benefit. Knowing these facts, and to accommodate an important client, Merrill Lynch, Furst, and Tilney knowingly rendered substantial assistance to Enron in carrying out the fraudulent transaction. After the transaction was completed and Enron reported its inflated earnings, Enron and Merrill Lynch unwound the transaction on June 30, 2000, and Enron received $8.5 million, half of its original fee. Enron Approaches Merrill Lynch With Proposed Energy Trade37. In December 1999, the CEO of Enron North America contacted Merrill Lynch investment bankers to discuss a proposed electricity option transaction that Enron wanted to complete by year end. Furst and Tilney wanted to do the transaction to help Enron and sought approval within Merrill Lynch. Initially, a Merrill Lynch executive told Furst and Tilney that Merrill Lynch was unlikely to approve the deal because such transactions normally took weeks or months to analyze and complete. However, Merrill Lynch explored whether it could complete the transaction in the tight time frame based on Enron's importance as a client and the urgency of its request. 38. Enron supplied Merrill Lynch with summary documents for the proposed transaction. Enron designed a transaction structure using two "back to back" call options. Enron proposed to sell Merrill Lynch a physically settled call option. Simultaneously, Merrill Lynch would sell to Enron an offsetting financially-settled call option. The terms of the options were nearly identical. 39. Furst and Tilney helped draft a summary memorandum dated on or about December 29, 1999, describing the terms of the transaction. The memorandum stated that the transaction was one of Enron's highest priorities and would enable Enron to achieve "off-balance sheet" treatment for certain assets. The memorandum discussed the options to be sold by each party to the other, stating, "[t]he quantities, pricing points, market locations and term are `mirror image.'" In a portion addressing "risk," the memorandum stated, "[t]he proposed transaction is `back-to-back' and is therefore `delta-neutral.'" The memorandum also stated that Enron would pay a fee of $17 million based in part on "the benefits enjoyed by Enron as a result of the transaction," and the fee would be built into the option premiums paid by Enron. The memorandum closed with a recommendation to approve the transaction based on Enron's importance as a client, the millions in fees paid by Enron on other transactions, and the financial benefits to Merrill Lynch and Enron. 40. Merrill Lynch, Furst, and Tilney knew they could request a substantial fee from Enron because Enron was anxious to complete the transaction. Enron was initially surprised regarding the size of the fee because the transaction posed little risk to Merrill Lynch, but ultimately agreed to pay a $17 million fee given the importance of the transaction to its year end earnings. Merrill Lynch Reviews And Approves Energy Trade41. On or about December 30, 1999, Merrill Lynch's Special Transactions Review Committee (STRC) met to review the transaction. Prior to the meeting, the STRC received the summary memorandum (see & 39 infra) prepared by Furst, Tilney, and another Merrill Lynch executive. The STRC reviewed the details of the transaction as described in the summary memorandum. The STRC also was informed that the transaction had no market risk and that the options offset each other. The STRC questioned, among other things, how Enron could use the transaction to achieve off balance sheet treatment for certain assets. The meeting adjourned so that more information could be obtained from Furst and Tilney. 42. While the STRC meeting was adjourned, Furst and Tilney had conversations with others at Merrill Lynch about questions raised at the meeting. Furst and Tilney then revealed to others at Merrill Lynch, for the first time, that Enron's purpose for the transaction was to achieve year-end earnings, not off-balance sheet treatment of assets. Merrill Lynch executives were angry and embarrassed at this revelation because they had given different information to the STRC. Once Enron's true purpose was known, a Merrill Lynch employee expressed reservations about the transaction because it appeared to him to be a ploy by Enron to manipulate its earnings. In response, another high level Merrill Lynch executive stated that Merrill Lynch had "17 million reasons" for getting the transaction approved. 43. When the STRC reconvened on or about December 30, 1999, Furst and Tilney joined the meeting by telephone. Furst and Tilney revealed to the STRC Enron's true purpose for the transaction -- to achieve year end earnings. Merrill Lynch also knew that Enron was accounting for the transaction in a different manner than Merrill Lynch was planning. Merrill Lynch viewed the transactions as offsetting with the only gain being the $17 million fee owed to Merrill Lynch. The STRC discussed how it could be that Enron intended to record a gain on the transaction. Concerned, Merrill Lynch attempted to create a record that it thought would shield itself from liability or exposure. The STRC expressed a desire to speak directly to Enron and its auditors, purportedly to confirm that Enron's accounting for the sham transaction had been approved. 44. Furst and Tilney contacted Enron's chief accounting officer (CAO) and asked him to speak to the STRC. Enron's CAO joined the STRC meeting by phone, introduced by Furst. Enron's CAO told Merrill Lynch that he was aware of the transaction, that Enron intended to take $50-60 million in earnings on it, that this was a material amount for Enron, and that it would affect bonuses of senior management at Enron. Enron's CAO also claimed that Arthur Andersen, Enron's auditors, had been consulted and had approved Enron's accounting for the transaction. Merrill Lynch requested that Enron provide a "warranty letter" stating that Andersen approved the transaction, that Merrill Lynch had provided no accounting advice to Enron, and that Enron had not relied on Merrill Lynch to determine the market value of the transactions. Merrill Lynch prepared the letter and Enron's CAO faxed the signed letter back to Merrill Lynch on December 31, 1999. 45. Merrill Lynch, Furst, and Tilney never talked to Andersen, and had no engagement or retainer with Andersen. Andersen provided no analysis or anything else about the transaction orally or in writing to Merrill Lynch, Furst, and Tilney. Merrill Lynch, Furst, and Tilney did not know whether Enron had fully disclosed to Andersen all facts about the transaction. These defendants fully knew, regardless of the purported "warranty letter," that the transaction was a sham transaction intended to create year-end earnings for Enron. 46. After Merrill Lynch received the purported "warranty letter" from Enron, the transaction closed. Enron recognized nearly $50 million in earnings for the year end 1999. The Parties Unwind The Energy Trade47. In February 2000, less than two months after the transaction was agreed upon, Enron sought to unwind the transaction early. Furst sought guidance within Merrill Lynch on a fee for the early unwind (because the original fee of $17 million was not paid up-front but would be paid in the form of option premiums, beginning months later, in September 2000). 48. In May 2000, an Enron executive again asked Merrill Lynch to unwind the transaction, with no payment of the $17 million fee to Merrill Lynch. However, Furst and Tilney believed that Merrill Lynch should be compensated for the early unwind. An e-mail dated May 2000 written by Tilney and sent to Furst and others confirmed that the parties contemplated the unwind at the inception of the transaction, and that the purpose of the transaction was to help Enron make earnings: This is not a great surprise as [the ENA CEO] had indicated to Rob [Furst] and me at year-end when we did this trade that [Enron] thought they would want to unwind at some point. As you know, [the ENA CEO] has now moved on to a new position at Enron, and I for one am less concerned about the relationship issues as they knew what we were making at the time and we were clearly helping them make earnings for the quarter and year (which had great value in their stock price, not to mention personal compensation). What would you think was a fair number in the absence of relationship issues? 49. Furst and Tilney had conversations with a Merrill Lynch executive who wanted the full original $17 million fee to unwind the transaction. The Merrill Lynch executive, Furst, and Tilney met with Bayly on the issue. Bayly told the participants that Merrill Lynch should unwind the transaction early for a lower amount, because Enron was an important client and there were wider relationship considerations. Thereafter, Furst negotiated with Enron regarding the fee. 50. On June 30, 2000, the same time period at which Enron facilitated the take out of Merrill Lynch from the barge transaction, the energy trade was unwound. Merrill Lynch received $8.5 million for the unwind, half of its original fee for the transaction. Effect of the Sham Transactions on Enron's Earnings and Merrill Lynch's Fees51. Enron's fraudulent scheme, aided and abetted by defendants, resulted in Enron's recognition of approximately $60 million in income for the fourth quarter 1999 (improving net income from $199 million to $259 million, a 30% increase). The fraudulent transactions also increased Enron's 1999 earnings per share from $1.09 to $1.17. The fraudulent earnings were publicly reported in Enron's 1999 Form 10-K and were reflected in Enron's 10-Q for the first quarter of 2000, the results of which were later distributed and published by Enron numerous times. Since the fraudulent earnings enabled Enron to meet its 1999 earnings targets, they had a favorable impact on Enron's stock price and the amount of bonuses for Enron's senior management, and enabled Enron to raise millions of dollars. 52. Merrill Lynch earned $9.275 million in fees from the barge and energy trade transactions. Defendants' substantial participation in Enron's fraud resulted in continued business and fees for Merrill Lynch on other Enron engagements. 53. Merrill Lynch handsomely compensated Bayly, Davis, Furst, and Tilney, and their efforts for Enron were a factor in determining the amount of this compensation. CLAIMS FOR RELIEFFIRST CLAIMAiding and Abetting Violations of Section 10(b) of the Exchange Act
|
| Home | Previous Page | Modified: 03/17/2003 |