--- title: "Merrill Lynch, CIBC, Barclays and other banks in Enron’s structured finance" language: en canonical: https://dossiertwist.com/dossiers/enron/merrill-cibc-barclays-other-banks/ as_of: 2026-10-14 keywords: ["Enron Corp.","Andrew Fastow","Kenneth Lay","Jeffrey Skilling","Richard Causey","LJM2 Co-Investment","Chewco","Raptors","special purpose entities","prepay transactions","Arthur Andersen","J.P. Morgan Chase","Citigroup","Merrill Lynch","CIBC","Powers Committee","bankruptcy examiner","Enron Task Force","California energy crisis","Newby class action"] --- # Merrill Lynch, CIBC, Barclays and other banks in Enron’s structured finance **Question.** What part did Merrill Lynch, CIBC, Barclays, Deutsche Bank and other banks play in Enron’s transactions, and what did the SEC, the Justice Department and the bankruptcy examiner conclude about them? **Answer.** Merrill Lynch settled SEC charges in March 2003 over two year-end 1999 transactions, the Nigerian barge purchase and two energy options, paying $80 million without admitting or denying the allegations, and reached an agreement with the Justice Department in September 2003; four of its former executives contested the charges. The Canadian Imperial Bank of Commerce (CIBC) accepted responsibility for its employees’ criminal conduct in Enron structured finance transactions in a December 2003 agreement with the Justice Department, settled SEC charges for $80 million and reached an agreement with Canadian and U.S. bank regulators. The bankruptcy examiner concluded that a fact-finder could find that Merrill Lynch, CIBC, Barclays and Deutsche Bank, and in his final report the Royal Bank of Scotland, Credit Suisse First Boston (CSFB) and Toronto Dominion Bank, aided and abetted Enron officers’ breaches of fiduciary duty and that their claims could be equitably subordinated; these are examiner’s conclusions, not court judgments. ## Merrill Lynch: the Nigerian barges and the 1999 power trades - Analysis: On March 17, 2003 the SEC charged Merrill Lynch & Co., Inc. and four of its former senior executives in federal court in Houston (Case No. H-03-0946) with aiding and abetting Enron’s securities fraud through two year-end 1999 transactions. Merrill Lynch settled at the same time, consenting to a permanent injunction against violations of the antifraud, reporting, books-and-records and internal-controls provisions and agreeing to pay $80 million: $37.5 million in disgorgement, $5 million in prejudgment interest and a $37.5 million civil penalty, intended for distribution to fraud victims. Merrill Lynch settled without admitting or denying the allegations; the SEC took into account that it had dismissed two of the executives after they refused to testify and had itself reported the energy trade to the staff. The four former executives contested the charges. In the related criminal case against Merrill Lynch and Enron executives over the alleged sham barge sale (No. 4:03-cr-00363, S.D. Tex.), the jury convicted five defendants and acquitted a former Enron executive, according to the government’s summary quoted in the U.S. Supreme Court’s opinion in Skilling v. United States. [src-040] [src-027] [src-055] - Analysis: The SEC alleged that the two transactions added approximately $60 million to Enron’s fourth-quarter 1999 income (from $199 million to $259 million) and lifted its 1999 earnings per share from $1.09 to $1.17. In the first, on December 29, 1999, Merrill Lynch bought an interest in Nigerian barges on the understanding that Enron would arrange its resale within six months at a set return, in substance a bridge loan yielding Enron $28 million of revenue and $12 million of pre-tax income. In the second, two energy options inflated Enron’s income by about $50 million; Merrill’s structured fee, worth $17 million in present value, was cut to $8.5 million when the deal was unwound in June 2000. These are allegations in the SEC’s complaint of March 17, 2003, which Merrill Lynch settled without admitting or denying and which the individual defendants contested. In September 2003 the Justice Department reached an agreement with Merrill Lynch & Co., Inc. under which the company accepted responsibility for the conduct of its employees, agreed to cooperate fully with the continuing Enron investigation and to implement reforms addressing the integrity of client and third-party transactions, with compliance overseen by an independent monitor and an outside auditing firm. [src-027] [src-031] - Analysis: The court-appointed bankruptcy examiner reported in his third interim report of June 30, 2003 that Merrill Lynch entered into approximately thirty-five transactions with Enron, many not related to special purpose entities (SPEs), and singled out the last days of December 1999, when two Merrill transactions let Enron inflate its reported results and meet its 1999 earnings targets. He found that the Nigerian barge transaction, closed on December 29, 1999, was in reality a short-term loan: under undisclosed verbal understandings with Andrew Fastow and Jeffrey McMahon, Enron was to take Merrill Lynch out within six months at an agreed return, LJM2 bought Merrill’s interest six months later, and Enron reported $12 million of 1999 earnings, as Merrill knew it would. In the simultaneous 1999 electricity trades, mirror-image contracts without commodity risk, Merrill knew Enron intended to book $50–60 million of earnings toward its 1999 targets; Enron terminated them six months later. He concluded that a fact-finder could find that Merrill Lynch knew of Enron officers’ wrongful conduct in both transactions and aided and abetted their breaches of fiduciary duty, and that its claims of $53 million could be equitably subordinated. These are the examiner’s conclusions of what a fact-finder could find, not a court judgment. [src-067] - Analysis: In the Silvercreek noteholder litigation, the plaintiffs’ complaint, as summarized by the U.S. District Court for the Southern District of New York in its opinion of March 31, 2017, cited the bankruptcy examiner’s evidence of Enron’s influence over Merrill Lynch’s analyst coverage, including a link between upbeat reports and Merrill’s role in Enron financings, and alleged that after an unfavorable report cost Merrill underwriting business, Merrill fired the analyst and hired one who covered Enron positively, after which Enron’s business returned. This was an allegation, not a finding of fact. The financial institution defendants, Merrill Lynch among them, jointly moved to dismiss in September 2011, arguing among other things that Silvercreek had not pleaded an underlying fraud or the banks’ actual knowledge of it, and the court held that a general desire to attract Enron’s business through positive coverage did not establish knowledge of fraud. [src-082] ## CIBC: FAS 140 transactions and the December 2003 agreements - Analysis: According to the factual statement in CIBC’s December 2003 agreement with the Justice Department, as summarized in the department’s release, from 1998 CIBC and Enron engaged in accounting-driven transactions under Financial Accounting Standards (FAS) 125 and 140, orally agreeing in advance to unwind several before maturity without telling Enron’s auditors. From 1999 CIBC also acted as lender and as the three-percent “equity” holder in such transactions, including Leftover, Nimitz, Alchemy, Discovery and Hawaii 125-0, only after Enron’s senior management orally promised repayment with a profit. The transactions generated 75 to 100 percent of Enron Energy Services’ reported earnings in 2000 and the first half of 2001, and 46 to 62 percent of Enron Broadband Services’ reported earnings for 2000 and the first quarter of 2001. CIBC accepted responsibility for the criminal conduct of its employees in the structured finance transactions with Enron and agreed to cooperate fully with the continuing Enron investigation; it was not convicted. [src-031] - Analysis: On December 22, 2003 the Justice Department announced that, under the agreement, CIBC had agreed to stop most structured finance transactions with U.S. public companies for three years, to adopt reforms including a committee reviewing quarter-end and year-end transactions, and to pay for an independent monitor for three years. As long as CIBC complied, the department would not prosecute the bank; the agreement also involved an $80 million payment to the SEC and protected no individual. The same day the SEC charged CIBC and three of its executives with aiding and abetting Enron’s accounting fraud; CIBC settled, consenting to a permanent antifraud injunction and paying $80 million in disgorgement, penalties and interest (Litigation Release No. 18517). Canada’s Office of the Superintendent of Financial Institutions (OSFI) and the U.S. Federal Reserve Board jointly announced an agreement requiring CIBC to adopt remedial policies for complex structured finance transactions and year-end and quarter-end transactions with SEC-registered U.S. companies; OSFI separately required enhanced reputational risk policies in CIBC’s worldwide operations. [src-031] [src-065] [src-039] - Analysis: The examiner reported that CIBC took part in at least eleven of Enron’s FAS 140 transactions between June 1998 and October 2001, earning more than $14 million in fees and acting as the SPE’s equity holder in every one that involved 3% equity. These transactions accounted for more than $1.7 billion of operating cash flow, hid more than $1 billion of debt and generated $585 million of income; CIBC’s own credit files recorded Enron management’s assurance that the equity would “absolutely be repaid”. He concluded that CIBC could be found to have aided and abetted Enron officers’ breaches of fiduciary duty and that its claims of $205 million could be equitably subordinated, an examiner’s conclusion rather than a court judgment. CIBC asserted that its equity was at risk as required by the 3% equity test, which the examiner said the evidence contradicted; he also cited denials by certain fact witnesses associated with the institutions. CIBC agreed on August 2, 2005 to pay $2.4 billion to settle the Newby class action, approved by the court in May 2006, and settled Enron’s MegaClaims suit by August 2005, according to lead plaintiffs’ counsel and press reports summarized by a class-action case database. [src-067] [src-036] [src-056] ## Barclays: Colonnade, J.T. Holdings and Nikita - Analysis: The examiner reported that Barclays, one of Enron’s Tier 1 banks from around 1993, rarely led the structuring of SPE transactions but played vital roles in them: on at least two occasions it took the required equity risk only after receiving Enron officers’ verbal assurances covering that risk; elsewhere it helped structure an SPE so that the 3% equity was not actually at risk, and it closed a transaction after being put on notice that Enron’s accounting was incorrect. He concluded that Barclays could be found to have aided and abetted Enron officers’ breaches of fiduciary duty and that its claims of $371 million could be equitably subordinated; this is not a court judgment. In testimony the examiner cited, the institutions maintained that the verbal assurances were not guarantees or enforceable agreements, testimony he found inconsistent with much of the documentary evidence, and he noted denials by certain fact witnesses; in August 2005 a Barclays representative was not available to comment on Enron’s MegaClaims suit, according to a press report summarized by a class-action case database. Barclays remained a defendant in that suit in October 2006, according to a press report, and later settled the Silvercreek noteholders’ claims against it, as recorded in a March 2017 court opinion; in the Newby class action a federal judge dismissed the shareholder claims against Barclays in July 2006, according to press reports summarized by the same database. [src-067] [src-082] [src-056] [src-105] - Analysis: In the SO2 transaction, closed on September 28, 2001 for about $138.5 million and refinanced on October 30, 2001 for about $29.1 million more, an Enron subsidiary ostensibly sold sulfur dioxide emission credits to Colonnade Limited, a Barclays-sponsored Guernsey SPE, for proceeds of about $167.6 million. The examiner found that offsetting derivatives with Barclays made the circular transaction in effect a secured loan, that Barclays shaped Colonnade to pass what it called an Andersen “smell test”, including by manufacturing a trading history, and that it closed the deal although its outside accountants warned that Enron likely could not account for it as intended. These are the examiner’s conclusions that a fact-finder could so find, not court judgments. [src-067] - Analysis: The examiner found that Barclays requested and relied on verbal assurances covering the 3% equity risk in at least two SPE transactions. In J.T. Holdings, a synthetic lease closed in December 2000 in which Barclays provided half of the equity, it proceeded on the basis of “explicit verbal support” from Treasurer Ben Glisan that Enron would in all circumstances repay the B notes and certificates. In the FAS 140 transaction Nikita, CSFB provided the SPE’s equity on condition that Barclays guarantee its return through a total return swap, which Barclays accepted only with Glisan’s verbal assurances. These assurances caused both transactions to fail the 3% equity test, according to the examiner’s conclusion of what a fact-finder could find, which is not a court judgment. [src-067] ## Deutsche Bank (BT/Deutsche): tax transactions, Cochise and Valhalla - Analysis: The examiner reported that BT/Deutsche, his term for Deutsche Bank AG and its affiliates and predecessors, played a major role in six of the eleven tax transactions originated by Enron’s tax department from 1995 to 2000, designing, promoting and participating in the Teresa, Steele, Tomas and Cochise transactions, and received approximately $43 million in fees from them between 1997 and the petition date. He found these transactions largely artificial, with no bona fide business purpose other than creating accounting income, concluded that BT/Deutsche could be found to have aided and abetted Enron officers’ breaches of fiduciary duty, and found that its claims of more than $227 million could be equitably subordinated; these are conclusions, not a court judgment. In August 2005 Deutsche Bank declined to comment on Enron’s MegaClaims suit, according to a press report summarized by a class-action case database; no other answer of the bank to the examiner’s findings is in the retained record. Deutsche Bank remained a defendant in the MegaClaims suit in October 2006, according to a press report. In investor litigation the MDL court in 2011 dismissed certain claims against Deutsche Bank for failure to plead scienter or actual knowledge, as recounted in the March 2017 Silvercreek opinion, which nonetheless allowed Silvercreek’s aiding-and-abetting fraud claim against it to proceed. [src-067] [src-082] [src-056] [src-105] - Analysis: The examiner found that part of Enron’s pre-tax gain from the Cochise transaction was triggered in the second quarter of 2000 by a purported sale of the “Cochise Planes”, interests in two leased commercial aircraft, to BT/Deutsche, which transferred them to another Enron SPE structure within thirty days; by acting as a conduit, BT/Deutsche enabled Enron to report erroneously a $36.5 million gain, more than 10% of its reported net income for the quarter. He also reported that on November 29, 2001 BT/Deutsche purported to set off its obligations to Enron under a $1.95 billion note and an interest rate swap settlement against Enron’s obligations to it under a guaranty, both arising from the Valhalla transaction, one of two tax accommodation transactions in which Enron acted as accommodation party to BT/Deutsche. The steps needed to effect the setoff may not have been completed before the petition date; in that case a later setoff could violate the automatic stay, and if the court refused it Enron could be entitled to collect about $1.95 billion plus accrued interest. Both are the examiner’s accounts and conclusions, not court findings. [src-067] ## The Royal Bank of Scotland, Credit Suisse First Boston and Toronto Dominion - Analysis: In his final report of November 4, 2003 the examiner concluded that a fact-finder could find that three further institutions, the Royal Bank of Scotland (RBS), Credit Suisse First Boston and Toronto Dominion Bank, aided and abetted Enron officers who caused Enron to enter into SPE transactions designed to manipulate its financial statements, and that those involved in the LJM1/Rhythms hedging transaction knew of Andrew Fastow’s wrongful conduct and helped him circumvent restrictions the Enron board had imposed through LJM1’s partnership agreement. He found evidence of inequitable conduct sufficient for their claims to be equitably subordinated; these are conclusions, not a court judgment. The examiner noted that the institutions may assert that the officers’ actions should be imputed to Enron, so that Enron lacks standing or in pari delicto defeats its claims; in the investors’ separate suit (H-03-5528) RBS and Toronto Dominion moved to dismiss. In August 2005 Toronto-Dominion agreed to pay Enron $70 million and RBS also settled the MegaClaims litigation, while CSFB had not settled, according to a press report summarized by a class-action case database; in the Newby class action the Fifth Circuit reversed class certification as to CSFB, Merrill Lynch and Barclays in March 2007. [src-038] [src-035] [src-056] - Analysis: The examiner’s third interim report, based on bank and Enron records and testimony rather than stating a court finding, described Citigroup prepays involving Toronto Dominion Bank: Truman, a $500 million prepay funded $250 million each by Citigroup and TD Bank, each serving as the other’s conduit; Jethro, a $675 million prepay that refinanced and extended Truman with the same parties and structure, each bank funding $337.5 million; and Nixon, a $324 million prepay funded $110 million by Barclays, $110 million by the Royal Bank of Scotland and $104 million by Citigroup, with TD Bank as the conduit entity. [src-067] ## Sources - [src-040] SEC Litigation Release No. 18038 / AAER No. 1742 (Merrill Lynch & Co., Inc. and four former executives), U.S. Securities and Exchange Commission, 2003-03-17 - [src-027] SEC Charges Merrill Lynch, Four Merrill Lynch Executives with Aiding and Abetting Enron Accounting Fraud (press release 2003-32), U.S. Securities and Exchange Commission, 2003-03-17 - [src-055] Court record source · src-055 - [src-031] Canadian Imperial Bank of Commerce Accepts Responsibility for Criminal Conduct of Employees in Enron Transactions, U.S. Department of Justice, 2003-12-22 - [src-067] Court record source · src-067 - [src-082] Court record source · src-082 - [src-065] Spotlight on Enron (SEC case index), U.S. Securities and Exchange Commission - [src-039] Joint press release of OSFI Canada and the Federal Reserve Board on CIBC (December 22, 2003), Board of Governors of the Federal Reserve System, 2003-12-22 - [src-036] Other source · src-036 - [src-056] Research source · src-056 - [src-105] Media source · src-105 - [src-038] Court record source · src-038 - [src-035] Opinion and Order, Newby v. Enron Corp. and related actions, Document 5382 (S.D. Tex.), U.S. District Court for the Southern District of Texas (via GovInfo), 2007-02-07