Two former Merrill Lynch & Co. executives were sentenced in Houston on Thursday to federal prison for their roles in helping Enron Corp. to disguise a $7 million loan as a sale of three Nigerian energy barges.
Daniel Bayly, 57, former global head of investment banking, was sentenced to 30 months in prison, and ordered to pay $840,000 in fees and fines. Bayly also will have six months of court supervision when he is released. James Brown, 52, who was chief of Merrill's strategic asset lease and finance group, received 46 months in prison and a year of supervision.
According to court documents, the bogus transaction allowed Enron to inflate 1999 earnings and meet analyst projections (see NGI, Nov. 8, 2004). Bayly was sentenced to the minimum sentence under federal guidelines after U.S. District Judge Ewing Werlein received more than 40 letters of praise about him. Brown was given a stiffer sentence because the jury determined that he had played a leadership role in the transaction.
Werlein in Houston called the letters from Bayly's family and associates one of most "extraordinary compilations about a person that I've ever received." Among other things, Werlein said Bayly was called "Boy Scout Bayly" and "By the Book Bayly" in the letters.
Although prosecutors had asked for stiffer sentences, Werlein said that the Merrill executives' time in prison should be markedly lower than the 10 years given to former Enron CFO Andrew Fastow, who pleaded guilty early last year (see NGI, Jan. 19, 2004). Fastow's 10-year sentence, said Werlein, "offers a benchmark in the sentencing of defendants in this case."
Werlein ruled the Merrill-Enron barge deal was relatively "benign in Enron's constellation of frauds" and, because it was discovered after the company's collapse, its damage to shareholders was incalculable. Werlein determined the defendants' actions resulted in an illicit $1.475 million gain for Merrill and a Fastow-created subsidiary, LJM2.
Three remaining codefendants, Merrill bankers Robert Furst and William Fuhs and Enron's former finance director Dan Boyle, are to be sentenced in May.
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