Wall Street's version of the see no evil, speak no evil defense is starting to get stale, especially when it comes to discussing the collapse of

Enron

.

But that's the tried-and-true strategy

Merrill Lynch

(MER)

opted for Tuesday during a hearing before the Senate Permanent Subcommittee on Investigation, which is investigating what role securities firms might have played in Enron's strategy of hiding corporate debt and inflating earnings.

Even as a top Merrill investment banker exercised his Fifth Amendment right against self-incrimination in refusing to testify, the nation's biggest brokerage issued a statement saying: "Our limited dealings with Enron were appropriate and proper based on what we knew at the time."

By the Script

And G. Kelly Martin, a Merrill senior vice president, never wavered much from that position in his answers to questions from the senators about some of Merrill's investment-banking deals with Enron.

The main subject of today's hearing involved Merrill's $7 million investment in a company that purchased three Nigerian power barges from Enron. The committee claims the deal, in which Merrill ultimately recorded a $775,000 profit, enabled Enron to pad its earnings by some $12 million in 1999. Sen. Carl Levin (D-Mich.), the committee's chairman, called the deal an "accounting sham." Merrill says all its dealings with Enron were arm's length transactions.

But in many ways, the sound and fury of the committee hearing were no different from last Tuesday's proceedings, when several executives from

Citigroup

(C) - Get Report

and

J.P Morgan Chase

(JPM) - Get Report

found themselves on the hot seat before the very same panel. The bank executives offered a similar line of defense to charges that the nation's two biggest lenders had profited by entering into deceptive transactions with Enron. And the senators were similarly unimpressed.

"Last week Chase and Citigroup denied the plain meaning of words in their own contemporaneous documents. Today, looking at the prepared statement of Merrill Lynch, it is more of that same approach -- deny the plain meaning of words in your own documents," said Levin. "But the underlying truth is the same as last week: Enron couldn't have engaged in deceptions it did without help from a major financial institution."

Didn't Do It

Indeed, ever since Enron became synonymous with corporate scandal, investors have heard a variety of excuses from Wall Street that all try to point a finger of culpability elsewhere.

First it was the overly bullish analysts who said they maintained their strong buy recommendations on Enron's stock because they were deceived by the company and its accountants at Arthur Andersen. Then it was the big credit-rating agencies like

Standard & Poor's

and

Moody's Investors Services

, which said they would have downgraded Enron's bond earlier, if they'd known about all of the company's off-balance sheet transactions.

And now it's the investment bankers who are trying to deflect the blame off of their shoulders and back onto Enron's executives and the bean counters at Arthur Andersen. But some outside observers find the investment banks' protestations of ignorance and innocence hard to stomach given just how much of fee-generator Enron was for so many Wall Street firms.

"They should step up to the plate," says Nell Minnow, editor and a co-founder of The Corporate Library. "If they didn't know what was going on they should have known. If they didn't know it was because they didn't want to."

Cost of Principle

Still, securities experts say it's no surprise that Wall Street has been unwilling to accept responsibility in Enron's collapse. Even if a Wall Street firm wanted to take a principled stand and acknowledge it may have gone too far in some of its dealings with Enron, the experts say it would be an act of financial suicide.

"They can't risk conceding anything, given the amount of money these firms could be liable for if the worst is true, which is that these firms knowingly participated" in Enron's off-balance sheet maneuvers, says Donald Langevoort, a securities professor at Georgetown University School of Law.

Indeed, when the various government investigations and civil lawsuits stemming from Enron and the other corporate scandals are all said and done, the amount of money in damages and fines doled out by Wall Street institutions could be unprecedented. Langevoort says the combined liability of Wall Street's institutions to investors and government regulators could exceed $10 billion.

"If the facts play out adversely to the banks, there will be strong pressure to impose a fairly dramatic penalty," says Langevoort. "And in the world of investment banking that takes a lot of zeroes."

The admit nothing defense didn't seem to hurt Merrill's stock. After opening lower, shares closed up 11 cents to $36.36.