WASHINGTON — The chairmen and chief executive officers of Citigroup Inc. and J.P. Morgan Chase & Co., Sanford I. Weill and William B. Harrison Jr., asserted Monday that they had no knowledge of the special-purpose entities that their firms allegedly used to help Enron Corp. disguise debt as income.
The heads of the country’s two largest banks had been asked during a July 23 hearing of the Senate’s permanent subcommittee on investigations to present by noon Monday affidavits detailing their knowledge of the special-purpose entities.
“Citigroup has over 270,000 employees and engages in millions of transactions every year,” Mr. Weill told Sen. Carl Levin, the Michigan Democrat who is the chairman of the subcommittee. “I have no personal knowledge of any of the transactions or entities raised in the subcommittee’s July 25 letter.”
Mr. Weill said in his three-paragraph affidavit that he had asked Barbara Yastine, the chief financial officer of Citi’s corporate and investment bank, to respond to nine questions posed by Sen. Levin.
Ms. Yastine’s affidavit essentially reasserted the stand that Citi officials took at last week’s hearing: that even though Citigroup formed Delta Energy Corp., paid its legal fees, and negotiated the details of any transactions into which Delta entered with third parties, it did not control the special-purpose entity.
“Although some of the facts described in the responses above … might seem to imply some level of control as that term is ordinarily understood in common usage, these are customary characteristics of independent SPEs and do not, in fact, demonstrate control under relevant legal or regulatory standards,” her affidavit stated.
Mr . Harrison also claimed his company does not control the special-purpose entity Mahonia Ltd. “I note that on at least one occasion, Mahonia declined to engage in an activity proposed to it by J.P. Morgan Chase that did not meet Mahonia’s risk criteria,” Mr. Harrison told the senator.
A Morgan Chase spokesman said he could not provide details on the transaction.
The subcommittee will continue its probe into the role financial institutions played in Enron’s collapse with a hearing today featuring three Merrill Lynch & Co. executives. Sen. Levin is expected to confront them with evidence that Merrill participated in unprofitable financing arrangements, made a temporary investment in Nigerian electricity barges, and upgraded an analyst’s rating on Enron stock — all to avoid the loss of the Houston energy company’s lucrative investment banking business.
In one transaction, Merrill agreed to make a $28 million investment in an Enron affiliate that owned three electricity-producing barges in Nigeria. According to Senate staff, internal documents and interviews with Merrill employees indicate that the deal was closed in late December 1999 so Enron’s African division could claim it as a sale for the fourth quarter and meet its revenue targets. However, in an unwritten promise, Enron agreed to buy the barges back from Merrill within six months, and guaranteed a 15% annualized return on its investment, subcommittee sources said.
Two of the Merrill executives are expected to assert their Fifth Amendment rights and decline to testify. The third, senior vice president G. Kelly Martin, is expected to deny that there was any guarantee that Enron would repurchase the electricity barges.
