STRONG
EVIDENCE OF QUID PRO QUO BETWEEN BANK AND ENRON
ECHOES TESTIMONY HEARD AT FEBRUARY HEARING
ON WALL STREET ANALYSTS
July 30, 2002
WASHINGTON - Governmental Affairs Committee Chairman
Joe Lieberman, D-Conn., said Tuesday, at a hearing called by
the Permanent Subcommittee on Investigations, that evidence
strongly suggests Merrill Lynch changed its rating of Enron
from “hold” to “buy” in exchange for Enron investment
banking business. The
evidence echos testimony heard at a full committee hearing on
the role of Wall Street analysts held February 27th.
Below is Lieberman’s statement:
Thank you, and I want to
again commend you, Senator Levin, and you, Senator Collins,
and your staffs, for your continuing and very insightful work
on the Permanent Subcommittee on Investigation into the role
of financial institutions in Enron’s collapse.
As Chairman of the full Senate Committee on
Governmental Affairs, I’m proud of and grateful for the work
that you are doing.
Today, we will examine
another set of very troubling transactions between Enron and
one of the nation’s leading financial institutions –
Merrill Lynch.
We’re going to be
talking about a number of technical issues today – about
highly complex agreements and partnerships that improved the
appearance of Enron’s financial statements but kept
investors in the dark about what was really happening at that
company before it was too late for most of them to save their
security. But
there are, of course, beyond these details, much larger
questions at stake – and I want to talk about them now.
For weeks now, the
markets have seemed like a mountain climber sliding down the
slope of a mountain, searching for a foothold.
Now, it appears that they may have grabbed onto a ledge
and begun to climb back up – but it’s too early to say for
certain.
Our markets are still
suffering, and the reason, as I think we all now know, is
simple: investors don’t know who or what to believe.
We Americans are great
risk takers. That’s what gives capitalism its great
vitality, its seemingly endless supply of new ideas and of
ambitious people to turn those ideas into opportunities and
wealth, to grow the middle class. But Americans are also great
pragmatists. We don’t part carelessly with our money.
We work hard to understand the difference between
intelligent investing and reckless gambling – and that
practicality is aided, we hope, by the honesty and
transparency of our markets.
It’s this critical blend of hard-charging risk and
hard-won trust that gives our unique brand of capitalism its
strength and its stability.
Without risk, our economy couldn’t accelerate.
But without trust, it couldn’t stay on the road.
That delicate balance has
clearly been upended since September 2 when Enron declared
bankruptcy, and since then with the scandals at WorldCom,
Global Crossing, and other corporations. It’s now troubling
to see truly venerable firms like Merrill Lynch drawn into
this web, with the evidence being presented today that the
company helped Enron in its effort to obscure its financial
statements, undermining market integrity in the long term, all
for profit in the short term.
This subcommittee investigation
has revealed that Merrill Lynch facilitated many of Enron’s
most questionable dealings.
Today, we’ll hear about Merrill’s willingness to
finance Enron CFO Andrew Fastow’s special purpose entities,
LJM II and III, and to help Enron manipulate the purchase of
equipment so that Enron could book additional revenue.
Today’s hearing also echoes several of the concerns
raised during the Full Committee’s hearing on February 27th,
when we examined the role of Wall Street analysts.
We’ll hear evidence that strongly suggests the
existence of a quid pro quo for Merrill to change its rating
of Enron from “hold” to “buy” in exchange for Enron
investment banking business being directed to Merrill.
The findings presented by the
Subcommittee today regarding this corruption of the analyst
ratings process are all too consistent with the findings of
New York Attorney General Eliot Spitzer’s investigation into
Merrill’s equity research practices in general, completed
earlier this year. As
a result of that investigation, Merrill Lynch agreed to a $100
million penalty and promised to reform its practices.
Hopefully, such practices will now wane at Merrill and
at other firms as a result of the very strong bill sponsored
and written by Senator Sarbanes.
Finally, I think it’s important
to remember again that today, as a result of a remarkable
revolution in this country that’s occurred over the last two
decades, in which capitalism has truly been democratized, more
than half of Americans have a stake in our capital markets, or
at least did before the recent crisis in investor confidence.
My guess is, they still do.
That money is underpinning people’s hopes for funding
a secure retirement, for sending a child to college, or for
buying a house or starting a new business. Just talk to your
friends and neighbors and co-workers, and you’ll be able to
measure the very personal impact of the issues we’ll be
discussing here.
So while the talk may get
technical today, the stakes here couldn’t be more real for
millions of American families.
Once again, Mr. Chairman, I want
to thank you and your staff again for your outstanding work in
these investigations, which have told and will continue to
tell such riveting stories of corporate fraud and negligence.
I am confident they will help bring about not just the
corrective legislation, but the business self-regulation that
will help restore confidence in our markets and help millions
of Americans pursue and achieve their economic dreams.
I look forward to hearing from
today’s witnesses.
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