Statement by SEC Chairman:
Suit against Merrill Lynch and Four Merrill Lynch Executives for Aiding and Abetting Enron Accounting Fraud
Chairman William H. Donaldson
U.S. Securities and Exchange Commission
March 17, 2003
Today, the Securities and Exchange Commission sued Merrill Lynch and four of its former senior executives for helping Enron commit securities fraud. As to Merrill Lynch itself, the Commission has agreed to accept its settlement proposal, which includes a payment of $80 million in disgorgement, penalties, and interest. We anticipate that the entire sum of $80 million will go into a distribution fund for the benefit of the victims of Enron's fraud. The four individuals are not settling. From them, we are seeking a full range of sanctions and remedies-penalties, injunctions, and officer and director bars.
Our action alleges that Merrill Lynch and the four individuals knowingly and substantially assisted Enron's fraud. These allegations stem from two year-end 1999 transactions that fraudulently added approximately $60 million to Enron's 1999 income and raised 1999 earnings per share from $1.09 to $1.17.
This is the fourth enforcement action that the Securities and Exchange Commission has brought in connection with the Enron matter. These actions cover a wide range of conduct, from self-dealing in connection with a special purpose entity transaction called Southampton, to inflating results in Enron's Broadband Business, to the earnings manipulation described in today's complaint. To date, the investigation has yielded charges against former CFO, Andrew Fastow, former executive, Michael Kopper, and Enron Broadband executives Kevin Howard and Michael Krautz.
Today's action against is yet another step in our sustained effort to see justice prevail in the Enron case. It is further proof that our net is cast deep and wide.
Today's action is also a part of our effort to ensure that all those involved in the financial reporting process including those outside the reporting company act with utmost integrity, and are held accountable when they don't. This action, therefore, is a message to all who would help a reporting company defraud investors: we will bring the full weight of our enforcement arsenal against anyone and everyone who does so. The securities laws provide us with tools to pursue those who help others commit fraud. Let there be no doubt: we will use those tools.
I want to take this opportunity to reaffirm that one of our highest priorities one of my highest priorities is to punish all those who would subvert the financial reporting process. Our commitment to protect investors demands nothing less.
I would like to commend Enforcement Division led by Steve Cutler and Linda Thomsen for their unrelenting commitment and tireless efforts to bring those who violate the public trust to justice. I yield the floor to Steve Cutler, Director of the Division of Enforcement to discuss the details of today's action.