Wall Streets ties with Enron under probe

Democratic Senate leaders have put Wall Streets relationship with Enron and potential financial conflicts of interest at the top of a broad Enron-related legislative agenda that was announced last week. Meanwhile, the House committee leading the Enron investigation is gathering documents and preparing to summon Wall Street executives.

These Congressional inquiries, still in their early stages, will examine the way Wall Street firms structured and sold Enrons limited partnerships. They also will look into the reasons Wall Street firms were issuing recommendations to buy Enron stock while they had detailed information about Enrons poor financial condition.

"Were trying to understand whether Wall Street firms had a vested interest to pump up Enron stock," says Senator Byron L Dorgan, a North Dakota Democrat and chairman of the Senate Commerce subcommittee investigating Enron. "Even as Enron was collapsing, analysts were pushing a strong buy. Did investment banks have an interest in trying to keep the stock from falling too far and was there an attempt to deceive investors?"

No date has been set for committee hearings, nor have individual firms or executives been named. But already, some members of the Congress have said they would like to examine arrangements involving Merrill Lynch, which underwrote and invested in some of Enrons off-the-books partnerships; Citigroup, which structured some of the deals to remove poorly performing assets from Enrons balance sheet; and Alliance Capital, which aggressively bought Enron shares for public pension funds as the stock tumbled in value.

"You can expect to see some Wall Street investment bankers and stock analysts coming before our committee soon," says Representative Diana L DeGette, a Colorado Democrat and member of the main House subcommittee investigating Enron. "The whole Enron situation is ripe with conflicts of interest and Wall Street is no exception. We want to explore how much those conflicts lead to the huge overvaluation in Enron stock."

Among the questions to be explored is whether Wall Street firms urged investors to buy Enron shares in order to protect their relationships with Enron. Others will ask why some investment banks had an accurate picture of Enrons poor financial health but did not share it with their own customers.