Citigroup, Inc.

LITIGATION RELEASE NO. 18335 / September 10, 2003

ACCOUNTING AND AUDITING ENFORCEMENT RELEASE NO. 1852 / September 10, 2003

Securities and Exchange Commission v. Ben F. Glisan, Jr., Case No. H-03-3628 (S.D. Tx.)

SEC CHARGES BEN F. GLISAN, JR., ENRON'S FORMER TREASURER, WITH SECURITIES FRAUD

Glisan Consents to Anti-Fraud Injunction and Officer and Director Bar

The Securities and Exchange Commission ("Commission") today charged Ben F. Glisan, Jr. with violations of the anti-fraud, lying to auditors, periodic reporting, books and records, and internal controls provisions of the federal securities laws. The Commission's complaint, filed in U.S. District Court in Houston, alleges that Glisan participated in Enron's manipulation of its reported financial results through a series of fraudulent transactions designed to inflate Enron's earnings and operating cash flows, while at the same time concealing the full extent of its debt. The fraudulent transactions included the "Raptor" sham hedges used by Enron to avoid earnings write-downs of over $1 billion, the fraudulent "sale" of an interest in Nigerian barges to Merrill Lynch, and "prepay" transactions, which were loans disguised as commodity sales contracts, used by Enron to overstate its cash flows by hundreds of millions of dollars.

Simultaneously with the filing of the complaint, Glisan agreed to file a consent and final judgment settling the Commission's action against him. In the consent, Glisan has agreed, without admitting or denying the allegations of the complaint, to the entry of a final judgment permanently enjoining him from violating, directly or indirectly, Sections 10(b), 13(a), 13(b)(2) and 13(b)(5) of the Securities Exchange Act of 1934 (Exchange Act), and Exchange Act Rules 10b-5, 12b-20, 13a-1, 13a-13, 13b2-1 and 13b2-2. Glisan has also agreed to the entry of an officer and director bar against him.

The Commission's complaint alleges that Glisan and others used the Raptors to manipulate Enron's financial statements. Raptor I was created in April 2000 through an off balance sheet SPE, called Talon LLC. Enron formed Talon to hedge against potential declines in certain of its mark-to-market investments. Although Enron provided most of Talon's funding, $30 million of its funding was from LJM2 Co-Investment, L.P. (the entity formed by Enron's former CFO, Andrew Fastow, to transact business with Enron), representing the purported 3% outside equity required for Talon to be off Enron's balance sheet. Glisan knew that Talon was not properly off Enron's balance sheet because it would not engage in hedging with transactions with Enron until LJM2 was no longer at risk. Glisan and others removed the risk by Enron and Talon entering into a "put," that is, a transaction that purportedly served to hedge Enron against a decline in its own stock value. Although it had no true business purpose, Enron purchased the "put" option for $41 million. The put was designed by Glisan and others as an ostensible reason to make a distribution of $41 million to LJM2, economically providing a return of and return on capital. Accordingly, Talon failed to meet the minimum equity test as required by the accounting rules for off balance sheet treatment.

The Commission's complaint also alleges that, at year-end 1999, Enron sold to Merrill Lynch an interest in certain Nigerian power producing barges. Merrill Lynch purchased the interest only after Enron orally guaranteed that Merrill Lynch would not lose money, would receive a generous return, and would be taken out of the deal within six months. The transaction was necessary for Enron to meet year-end reporting requirements, including recognition of $12 million in earnings and $28 million in funds flow. Glisan was aware of the oral guarantee, as well as of the accounting goals driving the transaction. He took an active role in making sure that Merrill Lynch was taken out within six months at the promised rate of return, thereby preserving for Enron the accounting benefits previously recognized.

Finally, the Commission's complaint alleges that Glisan and others participated in Enron's manipulation of its reported financial results through a series of complex structured-finance transactions, called "prepays," over a period of several years preceding Enron's bankruptcy. Enron used these transactions to report loans from financial institutions as cash from operating activities. Indeed, the structural complexity of these transactions had no business purpose aside from masking the fact that, in substance, they were loans to Enron. (See SEC v. J.P. Morgan Chase, Civil. Action No. H-03-2877 (S.D.Tex.) and In the Matter of Citigroup, Inc., Administrative Proceeding File No. 3-11192 (SEC).) As a result of the conduct of Glisan and others, Enron materially overstated its reported net cash flow from operating activities, materially understated its reported net cash flow from financing activities, and misrepresented the amount it borrowed.

The Commission brought this action in coordination with the U.S. Department of Justice Enron Task Force. The Commission's investigation is continuing.

Please contact Charles Clark (202-942-4731) for more information.

For additional information, see:

SEC Complaint in this matter