More Enron Fallout
JP Morgan and Citibank agreed to pay $308M in federal and state charges for complicity in the Enron accounting scandal. The crime is that they didn’t look at Enron’s books to make sure their loan amounts agreed with the amounts the banks knew were outstanding.
Enron recorded loans as revenue and hid the loans on its financial statements. The money quote:
Banks “may not take the view they are not responsible for financial disclosure made by others. They may not hide behind accountants and lawyers. They may not say, ‘Everybody does it.'”
So, if I do business with another entity and I don’t agree their financials to mine then I have violated the law by not verifying the financial disclosure of others?
Update: As Marc asks, why not hold the Justice Department accountable?
July 29th, 2003 at 11:36 am
I assume that these loans were probably not written up legally as straight loans which is what probably helped Enron be able to consider them as revenue even though they were in fact loans. This is probably different from the Worldcom scandal in that Worldcom simply miscategorized expenses as assets without any complicity from their suppliers in that regard.
July 29th, 2003 at 11:37 am
Maybe, but what are the odds that the banks loaned money to one of Enron’s many shell organizations and had no idea that it was Enron. So, to the bank, they were straight loans. Of course, with Andersen shredding like madmen, we may never know.
July 29th, 2003 at 8:40 pm
Maybe the Justice Department should be Liable.
http://www.washingtonpost.com/wp-dyn/articles/A59605-2003Jul28.html