US government officials grilled US banks yesterday on their involvement in deals alleged to have allowed Enron to engage in fraud.
Insurers, fighting a lawsuit by the banks for the money, argue they need not honour guarantees covering contracts between Enron and offshore entities because they did not know the arrangements were "merely disguised loans from the bank to Enron".
They also claim that insurers can not back loans with "surety bonds" under New York law.
But Enron lender JP Morgan, claims the insurers knew what they were guaranteeing.
The US Senate committee questioned banks, Citigroup and J P Morgan Chase executives. Officials accused the banks of using finance deals to help Enron mislead investors.
Senator Carl Levin who leads the investigators said: "Citigroup and Chase actively aided Enron in these transactions despite knowing they employed deceptive accounting and tax strategies and were being used by Enron to manipulate its financial statements."
Levin charged that Enron had "guaranteed" the investment, which under accounting rules would prevent it from booking the transaction as a "sale".
William Fox, managing director of Citigroup's Global Power and Energy Group, said he had "verbal assurances" from Enron that Citigroup's money would not be at risk.
