The tale of Enron will doubtless be passed on for generations among Wall Street traders and investors – as a measuring stick of corporate excess and barefaced scamming. Bethany McLean and Peter Elkind, (right) are co-authors of The Smartest Guys in the Room, the untold story of how Citi, J.P. Morgan Chase, and Merrill Lynch helped Enron pull off one of the greatest scams ever. The complicity of so many highly regarded Wall Street firms in the Enron scandal is documented in internal presentations and e-mails, many of which have never before been published. It seems that the banks have gotten off easy so far.

Book Excerpt:

On the morning of Oct. 23, 2001, Enron CFO Andrew Fastow sent the following e-mail to a J.P. Morgan Chase banker named Rick Walker.

Thanks for the voicemail…. The key thing right now is to get JP Morgan Chase fully com-fortable with Enron. I think you know the credit and the businesses as well as (and better) than anyone in the world, so I’m counting on you to lead the way. While JP Morgan is already one of the few most important financial institutions for Enron, a strong, timely action from your bank would be a “transforming” event in our relationship. Thanks for your support.

At the time Fastow wrote that e-mail, Enron was in its final descent: Its stock price was plummeting, the press was circling, the government was investigating, and the company was barely six weeks away from filing for bankruptcy. Just days earlier, Fastow’s role running two investment partnerships that did business with Enron—partnerships that were at the center of the growing scandal—had burst into public view. Fastow would be fired the next day.

J.P. Morgan Chase and Walker, the firm’s “relationship manager” for the Enron account, had long known about Fastow’s partnerships. Back in 1999, Walker had helped persuade his bank—Chase Manhattan at the time—to invest $10 million in one of them on the grounds that Fastow would reward the bank with investment-banking fees from Enron.

Now Walker saw not so much a crisis as a new opportunity for the bank to reap millions from its relationship with the Houston energy giant. Immediately after getting Fastow’s note, he sent an e-mail to a J.P. Morgan Chase colleague.

Eric: Following is a message I just got from Andy Fastow in response to an encouraging voice-mail I left him this morning as he prepares for an important investor call at 9:30 a.m. I don’t think there is any question he’s reaching out and offering gigantic new opportunities for us—obviously these guys are going to need some equity.

“I’m right with you,” the second banker responded.

Two years after Rick Walker wrote that e-mail, a handful of America’s largest and most important financial institutions—not only J.P. Morgan but Citigroup and Merrill Lynch as well—no longer deny that they helped enable the Enron fraud. After first insisting they were victims of Enron, the three firms have more recently paid a total of $366 million in fines and promised internal reforms that would prevent them from doing the sort of deals they did with Enron. Just weeks ago three former Merrill bankers were indicted on criminal charges and escorted to court in handcuffs.

In addition, six firms—the big three plus Deutsche Bank, Barclays, and CIBC—have, bizarrely, even been sued by Enron. Under new post-bankruptcy management, the company alleges that the financial institutions conspired with former top Enron executives to cook the company’s books, generating personal fortunes for the insiders and more than $500 million in revenues for the banks. The Enron estate is seeking billions of dollars in damages. A shareholder lawsuit led by feared plaintiffs attorney Bill Lerach is seeking additional billions from the banks.

Scroll to Top