Canadian Imperial Bank of Commerce
will pay $80 million to settle allegations that it and three of its executives helped fallen energy trader
cook its books.
The penalty is the latest in a string of multimillion-dollar
Securities and Exchange Commission
settlements with investment banks who helped arrange the transactions that helped Enron shield its financial condition from investors and Wall Street analysts.
Without admitting or denying guilt, CIBC agreed to pay back $37.5 million in ill-gotten gains and an additional $37.5 million in punitive damages, with the remainder representing prejudgment interest. The bank also was permanently enjoined from further violation of U.S. fraud provisions, language that generally provides for stiffer penalties if the illegal behavior is repeated in the future.
Also settling for a total of about $600,000 were Daniel Ferguson and Mark Wolf, two former CIBC executives on the Enron account. A third executive, Ian Schottlaender, a former managing director in CIBC's corporate leveraged finance group in New York, is contesting the allegations.
Ferguson, executive vice president of CIBC's treasury, balance sheet and risk management group, will pay $563,000 in disgorgement, penalties and interest, while Wolf, formerly a CIBC executive director for credit management in the leveraged finance group, will pay about $115,000.
Over a three-year period ending in October 2001, the SEC alleged, CIBC and Enron put together 34 transactions in which loans were structured as asset sales, a subterfuge that allowed Enron to misrepresent to investors and analysts the extent of its overall liabilities.
Enron used the deals to increase earnings by more than $1 billion, to increase operating cash flows by almost $2 billion, and to avoid disclosure of more than $2.6 billion in debt, the SEC said.
"Enron's alternative, borrowing money using the asset as collateral, would have given Enron access to cash to meet its operating expenses, but carried with it financial reporting consequences -- increased debt, no positive effect on cash flow and no positive effect on earnings -- that would have had a detrimental impact on Enron's credit rating and stock price," the agency said.
The transactions, which were generally carried out through Enron's Byzantine network of off-balance-sheet financing vehicles, are similar to those that resulted in big fines announced earlier this year against
and a handful of others.
Besides taking the other side in the transactions, CIBC was said to have provided some of the minority equity financing that allowed Enron to get the vehicles off its balance sheet.
Enron declared bankruptcy in December 2001. The settlements announced Monday will go into a restitution fund to help compensate its investors.