Magazine article Modern Trader

Enron Seeks Millions from Brokers

Magazine article Modern Trader

Enron Seeks Millions from Brokers

Article excerpt


While its accounting and trading scandal put an effective end to the run of Enron as one of the world's largest companies, it marked the beginning of years of lawsuits and complaints that may force Enron to live forever in the public consciousness.

At top of the list are court battles by derivatives dealers against Enron's attempts to recover more than $900 million in transactions from Lehman, Credit Suisse First Boston, Bear Stems and UBS. Enron argues the payments are recoverable under U.S. bankruptcy law because by the time Enron made those payments the company was already insolvent.

Before its collapse, Enron had entered into equity swap transactions with those four investment banks to hedge against future changes in its stock price, and now that it's in Chapter 11 bankruptcy, it is trying to recover payments.

The banks disagree, and associations protecting them state Congress has included specific provisions in the bankruptcy code to prevent derivatives payments from being unwound to protect the financial markets from disruption. They fear a reversal of the payments would disrupt financial markets and put future derivatives at risk.

The case has elicited help from organizations such as the International Swaps and Derivatives Association, the securities Industry Association and the Bond Market Association, that have collectively filed an amicus brief in the U.S. Bankruptcy Court in the Southern District of New York.

"The argument that Enron is making touched on what's called safe-harbor provisions in the U. …

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