Talk about the fox watching the Hen House

Talk about the fox watching the Hen House....

Specifically as to J.P. Morgan Chase, the Commission's allegations stem from J.P. Morgan Chase's participation in so-called prepay transactions with Enron which were loans disguised as commodity trades to achieve Enron's reporting and accounting objectives.

J.P. Morgan Chase and Citigroup engaged in, and indeed helped their clients design, complex structured finance transactions. The structural complexity of these transactions had no business purpose aside from masking the fact that, in substance, they were loans. As alleged in the charging documents, by engaging in certain structural contortions, these financial institutions helped their clients: (1) inflate reported cash flow from operating activities; (2) underreport cash flow from financing activities; and (3) underreport debt. As a result, Enron and Dynegy presented false and misleading pictures of their financial health and results of operations. Significantly, with respect to Enron, both financial institutions knew that Enron engaged in these transactions specifically to allay investor, analyst, and rating agency concerns about its cash flow from operating activities and outstanding debt. Citigroup knew that Dynegy had similar motives for its structured finance transaction.

Citigroup (C Quote - Cramer on C - Stock Picks) said Wachovia (WB Quote - Cramer on WB - Stock Picks) would have failed last Tuesday if Citi had not heeded the federal government's request to step in and buy much of the ailing bank.
The New York bank made the claim Monday in a statement announcing it had filed a $60 billion lawsuit against Wachovia and Wells Fargo (WFC Quote - Cramer on WFC - Stock Picks) for breaching an exclusivity agreement by trumping its $2.16 billion deal struck Monday with a $15.1 billion agreement reached Friday. Citi said Wells Fargo "walked away" from a deal before federal authorities called on Citi to help.

Citi's purchase was contingent on help from the Federal Deposit Insurance Corp. Citi was assuming responsibility for up to $42 billion of losses on $312 billion of Wachovia loans identified as potentially troubling. The FDIC would backstop the rest. Citi also was not buying Wachovia's securities and asset management units. Wells Fargo's offer was for the full company and included no help from the federal government.

"This was always a deal Citi wanted rather than one we needed," Citi said in a statement announcing the lawsuit. "We were and remain very excited about this transaction and how it will benefit the clients and shareholders of Citi and Wachovia, as well as help preserve the stability of the financial system. The Citi/Wachovia transaction would have been signed and announced on Friday, Oct. 3 if it had not been subverted by the unlawful conduct of Wachovia, Wells Fargo, and their officers and directors and outside advisors."

Citi reiterated that it had been providing liquidity support to Wachovia since its deal was announced.

http://www.thestreet.com/story/10440812/1/citi-sues-wells-fargo-wachovia-for-60-billion.html?puc=_htmlbooyah