16-09-03 Three former Merrill Lynch & Co. executives are expected to be named in an indictment to be unsealed on charges they helped Enron artificially inflate its earnings with a loan that was wrongly booked as a sale, people familiar with the case said. Daniel Bayly, Robert Furst and a third, unidentified former executive were slated to surrender to the FBI and then appear in federal court in Houston, according to sources.
The three are charged with fraud in a scheme in which Enron, with Merrill's knowledge, wrongly booked a short-term investment from the brokerage firm as profit from the sale of Nigerian barges. The income was then used to make Enron appear to have met earnings targets.

Bayly and Furst, are among four facing similar allegations in a civil complaint filed in March by the Securities and Exchange Commission. The third defendant is not charged by the SEC, which also named Merrill Lynch. Bayly, former global head and chairman of investment banking, retired from Merrill last year. Furst, former managing director in investment banking, quit in 2001. Their lawyers either declined comment or didn't return calls for comment.
The criminal charges do not involve Merrill Lynch, which settled the SEC civil complaint for $ 80 mm in March.

The barge transaction is among myriad schemes former Enron finance chief Andrew Fastow is alleged to have masterminded to promote Enron's illusion of financial success. He has pleaded innocent to nearly 100 charges including fraud, money laundering and insider trading and is scheduled for trial April 20.
In December 1999, then-treasurer Jeff McMahon approached Merrill about buying an interest in the barges so Enron could book $ 12 mm in earnings after efforts to sell them to Tokyo-based Marubeni had failed. Merrill agreed to invest $ 7 mm of the $ 28 mm purchase price -- Enron put up the rest -- with verbal assurances from McMahon and Fastow that the investment would be bought out within six months.

LJM2, one of several Fastow-run partnerships that did deals with Enron, bought Merrill's interest -- with financing from Enron -- for $ 7.5 mm in June 2000. Internal Merrill e-mails and documents noted in the most recent report by Neal Batson, appointed by the US Bankruptcy Court to investigate Enron's 2001 collapse, show Furst knew Enron needed the deal to match earnings targets. In one memo he said he supported the deal because Enron was an important client and Merrill's participation could differentiate the firm from other banks that did business with the energy company.
The examiner's report also said, citing testimony from other Merrill executives, that Bayly squelched concerns of others by calling Fastow to confirm the buyback promise before instructing the third executive to close the deal. Merrill was LJM2's exclusive financial adviser. Batson's report also said Furst personally invested $ 200,000 in LJM2.