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Merrill Lynch Agrees To Cooperate With Enron Investigation, Implement Reforms, With Oversight By Monitor

WASHINGTON, D.C. - Assistant Attorney General Christopher Wray of the Criminal Division, Enron Task Force Director Leslie R. Caldwell, and Assistant Director Grant Ashley of the FBI’s Criminal Investigative Division announced today that three leading former employees of Merrill Lynch & Co., Inc., have been indicted by a federal grand jury on charges of conspiracy to commit wire fraud and falsify books and records. One of the defendants was also charged with perjury and obstructing a federal investigation into the Enron Corporation’s multibillion dollar collapse.

The three-count indictment, returned by a federal grand jury in Houston, Texas, yesterday and unsealed this morning, charges: Daniel Bayly, 56, of Darien, Connecticut, the former head of the Global Investment Banking division at Merrill Lynch; James A. Brown, 51, of Darien, Connecticut, the head of Merrill Lynch’s Strategic Asset Lease and Finance group; and Robert S. Furst, 42, of Dallas, Texas, the Enron relationship manager for Merrill Lynch in the investment banking division.

In a separate agreement reached with the Department of Justice, announced today, Merrill Lynch accepted responsibility for the conduct of its employees. Merrill Lynch also agreed to cooperate fully with the continuing Enron investigation and to implement a series of sweeping reforms addressing the integrity of client and third-party transactions. An independent monitor, along with an outside auditing firm, will monitor Merrill Lynch’s compliance with these new reforms.


The indictment alleges that Enron and Merrill Lynch engaged in a year-end 1999 deal involving the “parking” of Enron assets with Merrill Lynch. That arrangement allowed Enron to enhance fraudulently the year-end 1999 financial position that it presented to the public and used to pay its executives unwarranted bonuses. The indictment alleges that Bayly, Brown and Furst knowingly participated in this illegal scheme, along with co-conspirators Andrew S. Fastow, Enron’s then-chief financial officer, and Daniel Boyle, then-vice president of Global Finance at Enron. Fastow and Boyle were both charged in a May 2003 indictment, and Fastow’s case is scheduled for trial in April 2004.

According to the indictment, Enron attempted unsuccessfully in 1999 to sell an interest in electricity-generating power barges moored off the coast of Nigeria. Enron, through Fastow, Boyle and others, then arranged for Merrill Lynch to serve as a temporary buyer so that Enron could record earnings and cash flow in 1999, making Enron appear more profitable than it was. Merrill Lynch’s purchase of the Nigerian barges allowed Enron to improperly record $12 million in earnings and $28 million in funds flow in the fourth quarter of 1999. The indictment alleges that Enron promised Merrill Lynch that it would receive a return of its investment plus an agreed-upon profit within six months - an oral agreement that was not disclosed in the written contact used by Enron’s internal and external accountants to determine the accounting treatment of the deal. Specifically, Enron promised in an oral “handshake” side deal that Merrill Lynch would receive a rate of return of approximately 22 percent, and that Enron would sell the barges to a third party or repurchase the barges within six months. That agreement meant that Merrill Lynch’s supposed equity investment in the barges was not truly “at risk” and did not qualify as a sale from which earnings and cash flow could be recorded.

On June 29, 2000, having found no true third-party purchaser to buy Merrill Lynch’s interest in the barges, Enron arranged for a special purpose entity known as LJM2, which was owned and operated by Andrew Fastow, to purchase Merrill Lynch’s interest for $7,525,000 - fulfilling the side agreement.

All three defendants were charged with conspiracy to commit wire fraud and falsify books and records, and Brown was also charged with perjury before the Enron Grand Jury and obstruction of the Enron Grand Jury investigation. Specifically, the indictment alleges that while testifying under oath before the grand jury in September 2002, Brown falsely stated he was “not aware of the promise” by Enron to Merrill Lynch regarding the Nigerian barge investment. The indictment further charges that Brown sought to obstruct and impede the grand jury by making false statements. The indictment also alleges that the defendants made false statements regarding the barge deal when questioned under oath before Congress, the Securities and Exchange Commission, and a court-appointed bankruptcy examiner.

“Investigations of this type are extremely difficult and complicated, and are made even more so when people deliberately seek to hide the truth from investigators,” said Assistant Attorney General Christopher Wray. “The American public is entitled to a full accounting of the circumstances behind Enron’s collapse, and the Department is committed to prosecuting those who lie or mislead in order to obstruct our investigation.”

If convicted of the conspiracy charge, all three defendants face a maximum sentence of five years in prison. Brown also faces a maximum sentence of five years in prison on the perjury count, and 10 years maximum on the obstruction of justice charge.

An indictment contains allegations that a defendant has committed a crime. Every defendant is presumed innocent until and unless proven guilty.

Merrill Lynch & Co., Inc., Agreement

In its agreement with the Department of Justice, Merrill Lynch acknowledges that the Department has developed evidence during its investigation that one or more Merrill Lynch employees may have violated federal criminal law, and accepts responsibility for any such violations.

The reforms agreed to by Merrill Lynch include: