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. Last Updated: 07/27/2016

Enron Investigation Hits Wall Street

NEW YORK -- Now that U.S. congressional investigators have looked at the role of accountants and insiders in the Enron debacle, they are now widening their probe and focusing on Wall Street and the role it played in the company's rise and collapse.

Democratic Senate leaders have put Wall Street's 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 Enron's limited partnerships and will look into the reasons Wall Street firms were issuing buy recommendations on Enron stock even as they detailed information about Enron's poor financial condition.

"We're trying to understand whether Wall Street firms had a vested interest to pump up Enron stock," said Senator Byron Dorgan, Democrat-North Carolina, and chairman of the 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 Congress have said they would like to examine arrangements involving Merrill Lynch & Co., which underwrote and invested in some of Enron's off-the-books partnerships; Citigroup, which structured some of the deals to remove poorly performing assets from Enron's 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," said Representative Diana DeGette, Democrat-Colorado, 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.

Still others will look at whether Enron pressured Wall Street firms to push Enron shares into clients' portfolios or to put money into Enron partnerships. In addition, lawmakers will raise the question of whether Wall Street helped facilitate Enron's shady financial practices.

"We cannot say that we have evidence of wrongdoing," said Representative James Greenwood, Republican-Pennsylvania, chairman of the House energy and commerce subcommittee leading the Enron investigation, "but we certainly have concerns."