Bloomberg: U.S. Hid Evidence in Enron Barge Case

[column width="1/1" last="true" title="" title_type="single" animation="none" implicit="true"]By Laurel Brubaker Calkins and Jef Feeley

March 24 (Bloomberg) -- U.S. prosecutors withheld evidencethat might have exonerated three ex-Merrill Lynch & Co. bankers convicted in 2004 of inflating Enron Corp.'s revenue through a deal involving Nigerian power barges, a defense lawyer claimed.Former Enron Treasurer Jeffrey McMahon might have helped show the company never secretly promised Merrill officials it would buy back the barges at a set profit, one of the bankers' lawyers said today in papers in U.S. District Court in Houston. McMahon turned the materials over to the Justice Department, according to court papers.The material shows prosecutors ``convicted the defendants for accepting a guarantee that McMahon simply did not make,'' Sidney Powell, a lawyer for James A. Brown, told the court. New York-based Merrill is the third-largest U.S. securities firm.The defense asked Judge Ewing Werlein to block a retrial ofthe bankers on fraud charges. The government contends the barge deal was nothing more than a disguised loan to Enron. The 2004 convictions were thrown out by an appeals court.Jurors might have learned that McMahon's testimony showed Enron's buyback promise, allegedly made by McMahon and conveyed to Merrill by former Enron finance chief Andrew Fastow, never happened, Powell argues.Paul Bresson, a Justice Department spokesman, said the government will address Brown's accusations in court. He declined comment further.The lawyer's claims are based on materials McMahon supplied the Justice Department in 2005 as it investigated the company's 2001 collapse, and on recently unsealed notes of Fastow's 2004 interviews with investigators.Fastow's NotesFastow's notes were withheld from Enron defendants until a judge ordered their release in a related case. McMahon's communications with prosecutors haven't been made public until now.Daniel Bayly, Merrill's former head of global investment banking; ex-Merrill vice president Robert Furst and former vice president Brown were convicted of fraud and conspiracy in 2004 over the barge deal.An appellate court in New Orleans overturned the convictions in 2006, while upholding additional perjury and obstruction convictions of Brown. Prosecutors have said they plan to retry the case.Enron sold the three floating power plants to Merrill for$7 million in December 1999. Prosecutors said Enron promised to buy the barges back at a profit within six months, making thedeal a loan, not a sale.

Meeting TargetsEnron officials used the transaction to meet earnings targets for 1999 by booking the proceeds as operating profit, prosecutors said. Witnesses testified in former Enron Chief Executive Officer Jeffrey Skilling's fraud trial in 2006 that the company used such sales to ``juice'' earnings and prop up its stock price.``We were using this to inflate our earnings,'' Fastow, who pleaded guilty to fraud charges, told jurors in Skilling's case. Skilling was convicted of fraud and conspiracy and sentenced to 24 years in prison. He is appealing his convictions.In the barge case, prosecutors said Fastow enticed Merrill into the deal with the secret buyback guarantee made during a December 1999 conference call.According to testimony in the Skilling case, Fastow told subordinates that McMahon approved the guarantee. Neither McMahon, who hasn't been indicted, nor Fastow, who is serving a six-year prison term, testified in the barge trial.Fastow testified on two other occasions that he didn't use the words ``guarantee'' or ``promise'' during the call.FBI InterviewsIn the newly released notes of Fastow's interviews with Federal Bureau of Investigation agents, the former finance chief admitted to lying to underlings, such as former Enron finance executive Ben Glisan Jr., about the buyback promise to prod them into finding a buyer for the barges, Powell claims.Brown's filing also includes letters and copies of Enron e-mails that McMahon and his lawyers sent to prosecutors and the U.S. Securities and Exchange Commission to persuade them not to charge McMahon for his role in the barge deal.McMahon declined to comment on the letters through his attorney, Tom Kirkendall. McMahon sent the materials to prosecutors in 2005 and to the SEC a year later.McMahon contended no one gave Merrill any buyback guarantee during the 1999 conference call in question. Both Fastow and McMahon were on the call.No Conflict``Any language used by McMahon would have been designed to encourage interest in the transaction, but never intended toconvey a proposal which would conflict with his clearlyestablished position against repurchases,'' William Dolan, alawyer for the former treasurer, said in the letter.McMahon pointed to e-mails in which he instructed otherEnron executives not to include repurchase guarantees in the deal and insisted that Enron wouldn't control the barges after the Merrill sale.McMahon told the prosecutors Glisan was mistaken when he testified McMahon approved the Merrill buyback in a conversation the two had at Enron headquarters in December 1999.McMahon couldn't have met with Glisan because he was away on vacation at the time, he wrote. He gave the Justice Department

payroll records to back up his contention``I could've negated a large portion of the government'scase'' with the withheld evidence, William Rosch III, a lawyerfor former Enron finance executive Daniel Boyle, said in a phone interview.Boyle was convicted along with the Merrill bankers as part of the barge trial and never appealed his sentence. He served 2 1/2 years in prison before being released in December.Merrill is a passive minority investor in Bloomberg LP, the parent of Bloomberg News.The case is U.S. v. Bayly, H-03-363, U.S. District Court, Southern District of Texas (Houston).

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