Enron probe subpoenas 7 CSFB officials

Focus is on partnership that took debt off books

March 07, 2003|By BLOOMBERG NEWS

NEW YORK - Credit Suisse First Boston investment banking chief Adebayo Ogunlesi and six other bank executives have been subpoenaed to testify about transactions they performed for Enron Corp., a bankruptcy examiner said yesterday.

Examiner Neal Batson asked a bankruptcy judge to force the executives to appear or face contempt-of-court charges.

The executives are trying to delay their testimony until they can coordinate evidence requests stemming from investor lawsuits, said Batson, the lawyer named by the Justice Department to investigate Enron's collapse.

Credit Suisse First Boston and Deutsche Bank AG arranged the sale of $915 million in notes for an Enron partnership in July 2001, five months before the energy trader filed what was then the largest bankruptcy in U.S. history.

Investigations and lawsuits arising from Enron's failure pose legal risks for Credit Suisse First Boston, the investment banking unit of Switzerland's No. 2 bank, at the same time the firm is facing litigation over practices during the technology stock bubble of the 1990s.

"There's a legal cloud hanging over this industry and Credit Suisse," said Heinrich-Horst Wiemer, an analyst at Bank Sal. Oppenheimer Jr. & Cie., who has a "neutral" rating on Credit Suisse Group. "This is one more ingredient."

Batson also is subpoenaeing:

Osmar Abib, managing director of Credit Suisse's banking team and energy group.

Curt Launer, an energy analyst formerly with Donaldson, Lufkin & Jenrette.

Brian McCabe, a vice president in Credit Suisse First Boston's corporate finance, investment banking and energy group.

Mary Beth Mandanas, an associate with the bank's leveraged finance group.

James Moran, a director of CSFB's energy group.

Laurence Nath, a managing director in the bank's structured products group.

Batson told the bank that he would also subpoena individuals from seven other unnamed investment banks, said John Gallagher, a Credit Suisse First Boston spokesman.

Batson released a 2,147-page report Wednesday that provides the most detailed description yet of the deceptive accounting practices that helped build Enron into the seventh-largest U.S. company by sales and ultimately led to a $68 billion loss of market value from its share-price high to its bankruptcy.

The Batson report lists the sale of $915 million in notes arranged by Credit Suisse First Boston and Deutsche Bank for an Enron partnership called Marlin Water Trust II.

Marlin Water Trust II's three-year, interest-bearing securities, backed by Enron stock, were designed to move debt off Enron's books from the company's money-losing water venture, Azurix.

Marlin Water Trust II defaulted on its interest payments less than five months later, making it the nation's largest default within the shortest time span, according to CreditSights Inc. and the Defaulted Bonds Newsletter.

Batson says Enron creditors may be entitled to seek about $5 billion in assets that were illegally moved off the energy company's books, including transactions done too close to a bankruptcy filing.

Credit Suisse First Boston set aside $450 million as a liability reserve last week. Under co-chief executives John J. Mack and Oswald J. Gruebel, Credit Suisse Group had a fourth-quarter loss of $811 million.

Credit Suisse cited a previous court order by Bankruptcy Court Judge Arthur Gonzalez as justification for delaying its response to the subpoenas. The judge told the parties to coordinate testimony with shareholder lawyers where it was "practicable."

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