“Merrill Lynch & Co. agreed to pay $80 million to resolve civil charges that it aided Enron Corp. in fraudulently overstating Enron’s earnings, becoming the first financial services firm to settle with regulators over the matter,” writes Randall Smith in today’s Wall Street Journal.

“The Securities and Exchange Commission plans to charge, in effect, that Merrill Lynch improperly aided Enron in overstating its earnings for 1999 by working with the failed energy company on two separate transactions as the year drew to a close.”

“Merrill announced the agreement in principle with the staff of the SEC late Thursday. In a statement giving few details of the charges against the New York securities firm, Merrill said it would record the payment — which will include disgorgement, penalties and interest — in its 2002 fourth-quarter financial results as a subsequent event. Merrill already reported earnings of $603 million for the quarter.”

“The two transactions at issue involved a barge deal allegedly intended to help Enron book an anticipated $12 million profit, and a series of gas and power trades that helped Enron book a profit estimated at $60 million. The barge deal was the subject of a congressional hearing in July.”

” ‘The fact that enforcement officials are pursuing the financial institutions that were parties to Enron’s financial deceptions is a positive sign,” Michigan’s Carl Levin, the ranking Democrat on the Senate permanent subcommittee on investigations who presided over the hearing, said in a statement. At the time, Merrill defended its dealings with Enron as ‘appropriate and proper.’ “

“When the settlement is made final in a few weeks, Merrill said in the statement, ‘Without admitting or denying any wrongdoing, Merrill Lynch would consent to an injunction enjoining the company from violations of the federal securities laws.’ “

“Merrill appears to have avoided sanction by the SEC on another high profile transaction, which was leading an effort to raise funds in 1999 and 2000 for LJM2, a $386.6 million Enron related partnership whose investments enabled Enron to hide debt, thereby allowing the firm to appear stronger financially.”

“The settlement represents a novel approach for the SEC, going after a trading partner that was alleged to have helped a public company bolster its financial results, said one securities law expert. The profits from the two transactions helped Enron in January 2000 report a profit for the fourth quarter of 1999 of $259 million, or 31 cents a share, matching analysts’ expectations and helping temporarily boost the price of the Enron’s stock.”

“Regulators also are scrutinizing Enron related conduct among other financial firms, including Citigroup Inc. and J.P. Morgan Chase & Co., as well as individuals from Merrill and elsewhere.”