Updated from July 22

The role of the nation's two biggest banks in the collapse of

Enron

will take center stage Tuesday on Capitol Hill, but the real drama in this saga likely will be played out months and years from now in courtrooms across the country.

That's because the issue of whether bankers at

Citigroup

(C) - Get Report

and

J.P. Morgan Chase

(JPM) - Get Report

knowingly helped Enron cook up a plan to hide some $8 billion in debt by camouflaging bank loans as oil and gas trades, won't be established through a few hours of congressional testimony.

Indeed, if past hearings into the messy situations at Enron,

Global Crossing

and

WorldCom

can serve as a guide, you can expect more posing for the cameras than anything else. So far, the politicians have proved more adept at scoring sound bites for the evening news than shedding light onto the root causes of these massive corporate scandals.

Downdraft

The selloff in banks stock continued Tuesday, with Citi losing $4.18, or 12%, to $27.86, while J.P. Morgan's stock dropping $2.62, or 10%, $21.90. Citi plunged $3.95, or 10.97%, to $32.05 Monday, while J.P. Morgan fell $1.59, or 6.09%, to $24.51. Both stocks set new 52-week lows.

Securities experts say proving there was a plot between Enron and its bankers won't be easy. Lawyers say the critical issue isn't so much how these arcane deals were structured, but rather the intent of the bankers and Enron in treating these off-balance sheet maneuvers as deals to buy and sell energy, rather than as loans.

"My understanding is these kinds of deals are fairly commonplace," says Donald Langevoort, a securities professor at Georgetown University School of Law. "But what were they done for? If it was being promoted to the Enron people as a way of helping them

produce not-so-honest financial reporting, that may be a violation of the law."

The distinction about whether these financing arrangements should have been treated as loans or transactions is important because Enron would have had to record any outstanding loans as a debt. The banks say they did nothing wrong in arranging these deals -- so-called prepaid commodity transactions -- and that it was up to Enron and its then auditor, Arthur Andersen, to decide how to report them.

The Round Trip

Congressional investigators, meanwhile, in documents released prior to the first hearing, characterized the prepaid deals as "sham transactions." The investigators found "no ordinary business reason" for the purchase of the Enron gas or oil contracts by the banks or the special purpose entities they set up to handle these deals.

In all, the Senate panel is looking into 12 deals worth more than $3.7 billion between J.P. Morgan and Enron through two special purpose entities allegedly controlled by J.P. Morgan called Mahonia Ltd. and Mahonia II. The panel also is looking at 14 deals valued at over $4.8 billion that Citigroup was involved in. Also coming under scrutiny are another $1 billion in prepaid transactions between Enron and other financial institutions.

Maybe the most damaging pieces of evidence the panel's investigators have dug up are some internal bank email messages that reveal that the bankers may have had knowledge that Enron was trying to mislead the investors.

In one of the emails, a J.P. Morgan employee writes: "Enron loves these deals as they are able to hide funded debt from their equity analysts because they (at the very least) book it as deferred rev or (better yet) bury it in their trading liabilities."

Joe Evangelista, a J.P. Morgan spokesman, says, "We believe Enron's obligation under these prepaid transactions appeared on its balance sheet."

The panel's investigators also have found that the banks tried to market similar prepay deals to other companies. Indeed, the Mahonia affiliates, which were organized in 1992 in the British island of Jersey, had energy deals with at least two other oil and gas companies, according to a search of the SEC's public records. In 1997, Mahonia signed a guaranty agreement with

Crystal Oil

of Louisiana and Mahonia II had a deal in 1999 with

Columbia Natural Resources

. A J.P. Morgan spokesman said he couldn't comment on those deals.

Sum of All Fears

But it's not really Congress that the banks fear. It's the private securities bar and the

Securities and Exchange Commission

, which are likely to keep pursuing this issue long after the cameras have gone dark on Capitol Hill.

Indeed, Citigroup and J.P. Morgan already are defendants in a growing number of lawsuits brought by shareholders and bondholders of Enron. Disgruntled investors claim the banks and other Wall Street firms not only knew Enron was in a lot worse financial shape than it was telling the public, but those institutions helped Enron carry out a strategy of hiding billions of dollars of debt in various off-balance sheet ventures.

J.P Morgan is even embroiled in a nasty legal fight with 11 insurers over its Mahonia transactions with Enron. The insurers, claiming that J.P. Morgan's deals with Enron were disguised loans, is refusing to honor an insurance policy the bank had taken out on those energy deals.

The SEC, meanwhile, could seek to prosecute the banks in a civil proceeding for aiding and abetting Enron, if regulators can show that the lenders knew Enron was using the transaction to deceive the public, says Marcel Kahan, a New York University School of Law securities professor.

In a recent Prudential Securities conference call focusing on the potential civil liability of the big commercial banks stemming from the Enron and WorldCom messes, some experts put the amount of damages these institutions could ultimately owe to investors at anywhere between $10 billion and $100 billion. Of course, it's worth remembering that it can take years for class-action lawsuits to be resolved.

"At this point the private litigation is a headache," says Kahan. "I would be more concerned about the

SEC. The biggest thing is the aiding and abetting."