A group of Wall Street banks and brokerages got some bad news a few days ago when a federal judge ruled that the firms could be on the hook for billions of dollars in damages to Enron's shareholders. But the ruling by U.S. District Judge Melinda Harmon also could prove embarrassing for dozens of Wall Street executives who are believed to have been investors in a partnership that played a key role in Enron's off balance sheet shenanigans. Lawyers for Enron's shareholders intend to explore which Wall Street power brokers sank money into LJM2, the $390 million partnership that Enron used to remove billions of dollars in ailing assets from its balance sheet. It's no secret that several Wall Street firms that did investment banking for Enron -- Merrill Lynch ( MER), Citigroup ( C), J.P. Morgan Chase ( JPM), Credit Suisse First Boston and CIBC -- were also investors in LJM2. The identity of most of the Wall Street executives who individually invested in LJM2 has, however, been cloaked behind private funds and partnerships that are the actual named investors, or limited partners, in LJM2.
Indeed, just as many on Wall Street were hoping the Enron debacle would fade into the background, the court ruling threatens to rekindle the furor over the role Wall Street firms played in allegedly helping Enron deceive the investing public. "One of the things this does is highlight the role of individuals within financial services companies and the complexities of those relationships," said Beth Young, a director with the Corporate Library, an organization that supports increased shareholder rights and promotes corporate governance reforms. "One of the perils of full-service financial institutions is that it's very difficult to reconcile conflict of interest."
DLJ, which Donaldson helped found, was acquired by CSFB in November 2000, a few months after Donaldson left the investment bank to become chief executive of Aetna ( AET), the health care insurer. A similar CSFB-sponsored fund, meanwhile, invested $10 million in LJM2. A CSFB spokeswoman declined to comment on the DLJ fund and the fund's investment in LJM2. Citing privacy rights, the spokeswoman said the firm could neither confirm nor deny whether Donaldson was an investor. Donaldson's New York office, meanwhile, referred all calls on the matter to the White House, which was unavailable for comment.