HOUSTON – Nearly two years before Enron Corp. (search) crashed in scandal, the one-time energy giant cooked up what prosecutors say was a sham transaction involving Merrill Lynch & Co. (MER).
The deal is not among the financial machinations that pushed Enron into bankruptcy in 2001, but prosecutors contend it's one of many accounting schemes Enron used to polish a facade of success.
Jury selection in the trial — the first criminal trial to involve former Enron executives — begins Monday. The trial is expected to take up to two months and promises to cast a harsh spotlight on Wall Street's practices with corporate America.
Enron's collapse led a series of corporate scandals that prompted Congress to pass sweeping securities law reforms. Thousands of Enron's workers lost their jobs, and the stock tumbled to just pennies, wiping out many workers' retirement savings.
"It's significant because this calls into question Wall Street practices in dealing with corporate America," said Philip Hilder, a former federal prosecutor who represents several Enron-related clients in Houston. "The ramifications of this are broader than Enron, certainly."
None of the six defendants — four former Merrill Lynch executives and two former midlevel Enron executives who are charged with conspiracy and fraud — have the notoriety or name recognition of Enron's former top senior managers like company founder Kenneth Lay (search) and former CEO Jeffrey Skilling (search).
But prosecutors accuse the six of helping push through a sale of several floating power plants stationed along the coast of Nigeria to the brokerage in late 1999 that allowed Enron to book about $12 million in pretax earnings.
The defendants, who have pleaded innocent, are: Daniel Bayly, former chairman of investment banking for Merrill; Robert S. Furst, the former Enron relationship manager for Merrill; James A. Brown, former head of Merrill's asset lease and finance group; William Fuhs, former Merrill vice president who answered to Brown; Dan Boyle, a former finance executive on former Enron finance chief Andrew Fastow's (search) staff; and Sheila Kahanek, a former in-house Enron accountant.
The brokerage avoided prosecution a year ago by cooperating with the government and implementing reforms that prohibit dubious deals. Six months earlier, Merrill paid the Securities and Exchange Commission $80 million to settle civil allegations involving the barge deal without admitting or denying wrongdoing.
Fastow, who in January became the government's most high-profile cooperating witness when he pleaded guilty to two counts of conspiracy, is alleged to have assured Bayly that Enron would buy back the barges.
Fastow is not among witnesses prosecutors plan to summon to testify.
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