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Wednesday, June 26, 2002


The Enron investigators extend their search into the banking business:

Criminal investigators examining the Enron debacle have expanded their inquiry to focus on activities at the commercial banks that provided billions of dollars in loans and other financial services to the company, according to current and former Enron executives and others involved in the investigation.

Federal prosecutors are investigating whether individual bankers illegally benefited from deals involving Enron-related entities, potentially at the expense of their employers, people involved in the case said. A number of bankers have been questioned about such self-dealing, lawyers said, and the government is said to be weighing whether to bring charges in one such matter.

The government has also stepped up its examination of an Enron-related partnership called Chewco. The financing for the partnership included loans from Barclays Bank structured in ways that hid them from Enron's auditors, according to Congressional testimony. The discovery of the hidden loans ultimately played a central role in the financial crisis last fall that led to Enron's collapse.

The Manhattan district attorney's office, meanwhile, working independently of the federal Enron task force, has opened its own inquiry into an array of transactions and financial institutions tied to Enron. According to current and former Enron executives who have been questioned by the Manhattan investigators, these include a series of deals between Enron and J. P. Morgan Chase that have been described in private lawsuits as disguised loans to the energy company.Banks had complex financial relationships with Enron, and the full details of those only began to emerge amid the debris of the collapsed company. Like most companies, Enron borrowed money to finance its operations. But banks also provided cash for the company's off-the-books partnerships and for outside investors in those entities. Some financial institutions and bankers were themselves investors in the partnerships.

Major New York banks, meanwhile, engaged in circular trades with Enron that allowed the company to obtain billions of dollars in loans without disclosing them to shareholders, according to trading records and court documents.
Source: New York TImes LINK

Of course, the insinuation here concerns individual employees, not the banks themselves. But it still raises the question as to how all this could have been going on, while at the same time individual American investors were being sold a story about a major revolution in productivity based on new techniques previously unknown to humankind, or was this what the late great Adan Smith really had in mind when he spoke of the operation of the hidden hand?

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