The government prepared Thursday to rest its fraud and conspiracy case against four former Merrill Lynch & Co. executives and two former mid-level Enron Corp. executives, following testimony from a key Enron executive that a barge sale was a sham designed to inflate profits.
In his second day on the stand, former Enron treasurer Ben Glisan Jr. said that he was uncomfortable with the purported sale of barges to Merrill from Enron at the end of 1999 and expressed his concerns to other company executives. Glisan pleaded guilty to conspiracy a year ago and is serving a five-year prison sentence.
Prosecutors allege the deal was really a loan because Enron -- namely, then-treasurer Jeffrey McMahon and former finance chief Andrew S. Fastow -- gave unwritten promises that Merrill's $7 million in investment would be bought out at a premium in six months. A Fastow-created partnership, LJM2 Co-Investment, bought the barges in late June 2000 for $7.5 million.
The government contends the executives conspired to get the deal done by the end of 1999 so Enron could book a critical $12 million pretax profit and Merrill could garner more investment banking business from the energy company -- then a lucrative client for Wall Street titans.
The defendants argue that Enron was never obligated to buy back or find another buyer for the barges, so the sale was legitimate.
Tom Hagemann, the lawyer representing Merrill executive Daniel H. Bayly, asked Glisan if Merrill would have lost its investment had the barges -- which carried power plants intended to supply electricity in Nigeria -- sunk in early 2000.
"I would not agree with that," said Glisan, who pressured Enron's barge deal team to follow through on the buyout promise. "I believe Enron would have made Merrill Lynch whole from that loss."
Glisan said he discussed the buyout promise with both McMahon and Fastow, and both told him the promise had been made. He said he complained to McMahon that the deal appeared as "almost an act of desperation," to which McMahon replied, "I'm comfortable with handshake deals."
McMahon has not been charged in the case; Fastow pleaded guilty to two counts of conspiracy in January and is cooperating with the government in Enron-related cases.
Glisan said he disliked the deal because Enron's frenzy to close it by the end of 1999 for such a small profit could indicate to Wall Street that the company was in trouble. But he felt compelled to ensure Merrill's interest was bought out to avoid Merrill-generated Wall Street whispers that Enron didn't keep its word.
Glisan also testified that he knew another Merrill executive, Robert S. Furst, "fully believed there was a guarantee" that the brokerage's investment would be bought out by June 2000.
Glisan, 39, was indicted in May 2003 on 24 counts that included fraud, conspiracy and money laundering. He began serving his sentence immediately upon pleading guilty to a single count of conspiracy in September 2003. He was compelled to testify in the barge case after the judge approved immunity against prosecution for other Enron-related crimes.
Asked if he would have faced much more time in prison had he not cut a deal, Glisan said yes, noting, "Any time is a lot of time."
In addition to Bayly and Furst, the barge defendants are former Merrill executives James A. Brown and William R. Fuhs; former Enron finance executive Daniel O. Boyle; and former Enron in-house accountant Sheila K. Kahanek.