Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Wednesday, January 6, 2010

Former Merrill Lynch Banker Settles SEC Charges Relating to Enron's Nigerian Barge Transactions

On Dec. 31, 2009, the U.S. District Court in Houston entered a final judgment in the Commission's civil action against Daniel H. Bayly (Bayly), former global head of investment banking at Merrill Lynch & Co., Inc. (Merrill Lynch).  The SEC had in 2003 charged Bayly and three other former executives of Merrill Lynch with aiding and abetting Enron Corp.'s earnings manipulation. That action remains stayed against Bayly's co-defendants pending resolution of a parallel criminal prosecution. Without admitting or denying the allegations in the Commission's complaint, Bayly has now been permanently enjoined from violating the antifraud provisions, as well as from aiding and abetting violations of the periodic reporting, books-and-records, and internal controls provisions; barred from serving as an officer or director of a public company for five years; and ordered to pay $300,001 in disgorgement and civil money penalties for deposit into the Commission's Enron Fair Fund.

As alleged in the Commission's complaint, Bayly substantially assisted Enron's sham sale of an interest in certain Nigerian barges during late 1999. Although the interest in these barges purportedly passed to a special purpose entity in which Merrill Lynch invested equity capital, Bayly had received an oral commitment from Enron's then-Chief Financial Officer, Andrew Fastow, that Merrill Lynch would be repaid within six months at a specified rate of return. In substance, this side agreement transformed what was supposed to be an equity investment into a bridge loan with a fixed interest rate. The complaint alleged that Bayly helped enable this sham "sale" on Enron's interest in the Nigerian barges so as to maintain favorable relations with Enron. By participating in the arrangement - which allowed Enron fraudulently to record $28 million in revenue and $12 million in pre-tax income - Bayly aided and abetted Enron's violations of the federal securities laws.

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