Risk & Compliance

Former Merrill Executives Charged in Enron Case

Should ''barges off the coast of Nigeria'' have raised red flags? Also: Richard Grasso resigns as NYSE chairman; GE ties Immelt's compensation more...
Stephen TaubSeptember 18, 2003

Three former Merrill Lynch investment bankers were charged with conspiracy to defraud investors for their role in a 1999 deal that allowed Enron Corp. to report a bogus $12 million profit.

Robert Furst, once Merrill’s relationship manager with Enron, Daniel Bayly, former head of global investment banking, and James Brown, former head of strategic asset lease and finance, surrendered at the Houston office of the Federal Bureau of Investigation and were taken by car to federal court, according to Reuters.

They were charged with conspiracy to commit wire fraud and falsify books and records, according to the wire service’s account of the court papers. If convicted, each faces up to five years in prison. Brown was also charged with obstruction of justice and perjury, for which he faces up to an additional 15 years, said Reuters.

According to accounts of the indictment, the 1999 deal was designed to look like the sale of three barges carrying generators, moored off the coast of Nigeria. In reality, Merrill was loaning money to Enron and holding the barges, with the understanding that it would be repaid with interest within six months, according to the wire service.

Merrill avoided prosecution by promising the government it will change its procedures, accept outside oversight, and report complex transactions directly to clients’ outside auditors, said Bloomberg.

“Merrill Lynch becomes a watchdog of clients, not a lapdog or conspirator,” U.S. prosecutor Andrew Weissmann reportedly told reporters on the steps of the federal courthouse in Houston, calling the agreement a model for the financial-services industry. “We’re satisfied that they get it.”

The indictments come one week after former Enron treasurer Ben Glisan pled guilty to a single count of criminal conspiracy and was sentenced to five years in a federal minimum-security prison.

So far, according to Bloomberg, 19 former Enron officials, including ex-CFO Andrew Fastow, have been criminally charged for their roles in the company’s bankruptcy.

Richard Grasso resigns as NYSE chairman

At an emergency meeting of the New York Stock Exchange called late Wednesday, Richard Grasso stepped down as NYSE chairman.

The Associated Press reported that Grasso entered the meeting of the NYSE board and said he was prepared to offer his resignation if the board asked him to, according to a source close to the board, who spoke on condition of anonymity. The board did ask, reported the AP, and then accepted Grasso’s resignation. The New York Times added that in a “heated discussion,” 13 of the 20 directors who participated voted to accept the resignation, and that 7 were opposed.

The three largest U.S. public pension funds, as well as floor brokers and former NYSE executives, had called for him to step down. Sen. Joseph Lieberman (D.-Conn.) also called for Grasso to resign “for the sake of the confidence of the market,” according to Bloomberg.

Before yesterday’s emergency meeting, Bloomberg speculated that prime candidates to replace Grasso would include former SEC Chairman Arthur Levitt; Joseph Grundfest, a former SEC commissioner and a Stanford law professor; and Ira Millstein, a lawyer at New York’s Weil Gotshal & Manges LLP who has advised the exchange on corporate governance.

For now, reports Reuters, the NYSE is in the hands of lead director H. Carl McCall — the compensation committee chairman who signed off on Grasso’s $140 million package. Daily operations will be handled by two longtime Grasso underlings, co-chief operating officers Robert Britz and Catherine Kinney, according to the wire service.

GE Ties Immelt’s Compensation More Closely to Performance

General Electric Co. has announced that its compensation committee has changed how it awards stock-based pay to Chairman Jeffrey Immelt, according to wire service reports.

Immelt was showered with 250,000 performance share units with a potential value of $7.5 million. However, in a departure from past practice, the award is not guaranteed. “The full value of the grant is at risk, based on GE and GE stock performance,” the committee reportedly said.

In 2002, Immelt’s annual equity grant was 1 million stock options, vesting in equal parts over five years, with a present value of $8.4 million, noted GE.

Each September, equity compensation grants are made to several hundred senior GE executives to provide incentives for retention and superior performance, the compensation committee said. But this year the committee made the awards a combination of stock options (60 percent) and restricted stock units (40 percent). In the past, the awards were 100 percent stock options.

Immelt’s performance share units will vest at the end of five years, and half of the units will convert to GE shares, but only if the company’s cash flow from operating activities has grown an average of 10 percent or more per year over the period, GE reportedly said. The remaining units will convert only if the company’s total shareholder return meets or exceeds the Standard & Poor’s 500 Index over the period.

If one or both of the criteria are not met, added GE, the performance units will be canceled.

During the performance period, Immelt will receive regular cash payments on each unit equal to the company’s quarterly per-share dividend.

“Linking 50 (percent) of Mr. Immelt’s equity compensation directly to cash generation performance of the company underscores GE’s commitment to strong operating discipline, our triple-A ratings, and the GE dividend,” said the company’s compensation committee. “The remaining 50 (percent) of the equity compensation is based solely on successfully delivering to GE’s shareholders total returns equal to or better than the broader market.”

(Editor’s note: See how CFO compensation measures up with company net income during the past four years. And for the big picture on CFO pay, take a look at our special report.)

SEC Seeks $23 Million Sarbanes-Oxley Escrow

The Securities and Exchange Commission has asked that a federal judge require Vivendi Universal to place in escrow severance payments to be made to former chief executive Jean-Marie Messier, according to Reuters.

The SEC application invoked the Sarbanes-Oxley Act in requesting that Vivendi place in escrow the 20.5 million euros ($23 million) that a New York state court had ordered Vivendi to pay, despite investigations into Vivendi by U.S. and French prosecutors.

The Sarbanes-Oxley Act authorizes the SEC to seek a temporary order during investigations into possible securities law violations. Under such an order, noted the commission, a public company must escrow extraordinary payments it may make to an officer, director, or affiliate.

Weill to Leave Citigroup Early

Citigroup said Sandy Weill will retire three months earlier than he had initially planned.

The 70-year-old will step down as chief executive officer effective October 1 instead of January 1. He will remain as chairman of the board until the 2006 annual meeting, however. Weill continues to hold at least 75 percent of his 22.3 million shares under Citigroup’s stock ownership plan.

As previously announced, Charles O. Prince will become chief executive officer, and Robert B. Willumstad will add the title of chief operating officer to his current title of president.

Short Takes

  • Royal Ahold NV, which is embroiled in an accounting scandal, announced that chief executive officer Anders Moberg will give up a guaranteed bonus worth as much as $3.4 million after shoppers in the Netherlands boycotted the company’s supermarkets to protest his pay.
  • The New York Stock Exchange has accepted the plan of Miller Industries Inc. to regain compliance with the NYSE’s continued listing standards relating to shareholders’ equity and market capitalization within an 18 month timeframe, according to the company.
  • Ford Motor Credit Co., the finance arm of Ford Motor Co., raised $3 billion from the sale of two-part global notes, led by Banc of America Securities, Morgan Stanley Co., and UBS Investment Bank. It issued $1 billion in five-year notes, priced to yield 5.711 percent, or 260 basis points more than comparable Treasurys, and $2 billion in 10-year notes, priced to yield 7.073 percent, or 280 points over Treasurys. The issues were rated A3 by Moody’s and BBB by Standard & Poor’s.
  • Microchip maker OmniVision Technologies Inc. named John T. Rossi as vice president of finance and chief financial officer. Since September 2002, he has served on OmniVision’s board and managed Rossi Advisors LLC, a financial consulting firm for clients in information technology. From April 1990 to September 2002, he was a managing director at Robertson Stephens Inc., where he served as head of the digital media investment banking group.