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J.P. Morgan Chase & Co. and Citigroup Inc. have agreed to pay $286 million to settle charges that they helped Enron Corp. hide billions of dollars in debt from investors, the Securities and Exchange Commission and Manhattan District Attorney Robert M. Morgenthau announced Monday. Chase will pay $135 million and Citigroup $101 million for creating transactions with Enron that disguised $8.3 billion in loans as cash from operating activities. The SEC alleges that the banks structured the loans as complex financial transactions, which they knew would allow Enron to inflate cash flow from operating activities, underreport cash from financing, and underreport debt. The banks will each pay $12.5 million to the state and $12.5 million to New York City, plus the costs of Morgenthau’s investigation. Citigroup will pay an additional $19 million to settle similar charges for its financial dealings with Dynergy Inc. Neither bank will admit wrongdoing as part of the settlement, and Morgenthau said Monday that his office would not bring criminal charges against any of the banks’ employees. “You have to show intent to defraud,” Morgenthau said on Monday. “We did not feel we could show that here.” The banks also have agreed to internal reforms and closer scrutiny of how clients will account for transactions with the banks, steps Morgenthau said would ensure that future transactions are understood by investors. Both banks pledged to no longer violate antifraud provisions of the federal securities law. Stephen M. Cutler, director of the SEC’s Enforcement Division, said, “These two cases serve as yet another reminder that you can’t turn a blind eye to the consequences of your actions — if you know or have reason to know that you are helping a company mislead its investors, you are in violation of the federal securities laws.” The $255 million paid to settle the SEC charges will be paid to the fraud victims of Enron and Dynergy under the Fair Fund provisions of � 308(a) of the Sarbanes-Oxley Act of 2002. Morgenthau also released a letter from his office to Alan Greenspan, chairman of the Federal Reserve Board, and several banking officials, pleading for regulatory changes that would bar financial companies doing business in the United States from using “Special Purpose Entities” located in offshore jurisdictions with strict bank secrecy laws, such as the Cayman Islands. In the Enron transactions, loans were masked as pre-pay transactions from offshore entities buying volumes of crude oil or natural gas. In a letter to Morgenthau, Marc J. Shapiro, vice chairman of J.P. Morgan Chase, said the bank would hold itself to a higher standard than it had in the past. “We have made mistakes,” he wrote. “We cannot undo what has been done, but we can express genuine regret and learn from the past.” Charles O. Prince, chairman of corporate and investment banking at Citigroup and the bank’s future CEO, said in a letter to the district attorney, “I want to assure you, both personally and on behalf of Citigroup, that the Enron transactions do not reflect our current standards and they would not happen now — and will not happen in the future.” Both J.P. Morgan Chase and Citigroup are Enron creditors and defendants in shareholder lawsuits against the company. The lawsuits are before Judge Melinda Harmon of U.S. District Court for the Southern District of Texas, while the bankruptcy is being handled by Judge Arthur J. Gonzalez of the U.S. Bankruptcy Court in the Southern District of New York. All parties have been directed to participate in non-binding mediation overseen by Southern District Senior Judge William C. Conner of White Plains.

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