Fed of N.Y. Reportedly Looking at J.P. Morgan's Enron Accounting

The Federal Reserve Bank of New York reportedly is reviewing J.P. Morgan Chase's ( JPM) accounting for certain commodity transactions it carried out with Enron.

Internal documents show the Federal Reserve is examining trades conducted between the bankrupt energy trader and an offshore entity set up by Chase Manhattan 10 years ago called Mahonia Ltd., The Wall Street Journal reported. The report said the documents don't indicate J.P. Morgan is the subject of a formal investigation.

The review is focusing on "prepaid forward transactions" between the two parties in which J.P. Morgan paid Mahonia and ultimately Enron upfront for the delivery of natural gas or crude oil. The Fed appears to be reviewing how J.P. Morgan accounted for the transactions, the newspaper said, adding that Enron generally accounted for them as trades rather than loans.

A J.P. Morgan spokesman described the Fed examination as "normal" and part of the normal course of its regulation of banks. A Fed spokeswoman said, "As part of our normal banking supervisory role, we need to understand what is happening at the institutions we supervise. Under the current circumstances, of course, we would be asking questions of institutions with exposures so that we could understand the nature of their exposures and their accounting treatment."

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