Merrill Lawyer Says Disliked 1999 Barge Deal With Enron

An in-house Merrill Lynch & Co. (MER) lawyer didn't support the brokerage's harried $7 million investment in Enron Corp.- (search)owned barges at the end of 1999 and would have blocked it had she known of an alleged verbal promise to buy back that interest within six months, she testified Tuesday.

"I would have felt it was a sham," Kathy Zrike testified under cross examination about the deal at the center of the fraud and conspiracy trial of four former Merrill executives and two former midlevel Enron executives.

Zrike reiterated her testimony Monday that she knew only that Enron verbally promised to keep trying to find another buyer for the three power-generating barges moored off the coast of Nigeria after the Merrill deal closed in December 1999, allowing the energy company to book a $12 million pretax profit in the fourth quarter.

Zrike said she was not told of alleged unwritten promises of an agreed-upon buyout price of $7.5 million or that Enron would buy back the barges if another buyer failed to turn up.

The government alleges such promises were assured by former Enron finance chief Andrew Fastow (search), so the deal was really a loan and Enron wrongly booked a profit. A Fastow-created and controlled partnership, LJM2, bought the barge interest for $7.5 million in June 2000.

The defendants contend Enron was never obligated to buy back the barges.

Zrike said she hoped the frenzied year-end deal would fall apart whether or not it would massage Merrill's relationship with Enron, then a lucrative client.

"I just didn't like being forced into doing something like that ... not forced, but pushed into doing it," she said.

After Zrike finished testifying, two other witnesses for Merrill defendant Daniel Bayly, former head of investment banking for the brokerage, invoked their Fifth Amendment right against self incrimination and declined to testify.

They were Mark McAndrews, former chief administrator for investment banking for Merrill, and Kelly Boots, a former Enron executive in charge of evaluating the energy company's relationships with banks and brokerages.

On Monday Zrike testified she discussed the deal three days before Christmas 1999 with Bayly, McAndrews and Tom Davis, Bayly's then-boss and former executive vice president of Merrill's Corporate and Institutional Client Group. Zrike said Davis, the uppermost manager at the brokerage to sign off on the deal, instructed Bayly to Bayly to talk to a "senior person" at Enron to ensure the energy company would continue seeking other buyers. Davis invoked the Fifth Amendment and declined to testify Monday.

The government alleges Fastow gave the buyback assurance to Bayly on a conference call the next day. Boots participated in the call on Enron's end. Zrike said she expected to be included on the call, and was "annoyed" when she wasn't.

Davis, McAndrews and Boots have not been charged with any crimes.

Bayly's lawyers said they would rest their defense case later Tuesday, and next in line for the defense is Merrill defendant James A. Brown. Then Merrill defendant William Fuhs, who answered to Brown, would present a case. Fuhs' attorney, David Spears, said Fuhs plans to testify.

Other defendants are former Merrill executive Robert Furst, former Enron finance executive Dan Boyle and former Enron in-house accountant Sheila Kahanek.