The Securities and Exchange Commission (SEC) and the Department of Justice announced Monday they have reached settlements with one of North America’s largest financial institutions, Toronto-based Canadian Imperial Bank of Commerce (CIBC), for its role in defrauding investors in the years leading up to Enron Corp.’s bankruptcy in late 2001.

The SEC complaint charged CIBC and three executives with having helped Enron to mislead its investors through a series of complex structured financial transactions over a period of years prior to the Enron bankruptcy. The commission filed a civil injunctive action in U.S. District Court in Texas Monday permanently enjoining CIBC from violating antifraud and other provisions of the federal securities laws and ordering the bank to pay $80 million to Enron fraud victims.

CIBC agreed to the final judgment without admitting or denying the SEC’s allegations.

Also named in the civil action were Daniel Ferguson, Ian Schottlaender and Mark Wolf. Schottlaender, a former managing director in CIBC’s corporate leveraged finance group in New York City, is contesting the charges. Without admitting or denying the charges, Wolf and Ferguson agreed to the settlement that permanently bars them from violating antifraud provisions of federal securities laws.

As part of the deal Ferguson, executive vice president of CIBC’s treasury, balance sheet and risk management group, is required to pay $563,000, and will be barred from serving as an officer or director of a publicly traded company for five years. Wolf, formerly a CIBC executive director responsible for credit management in the leveraged finance group, has agreed to pay $60,000.

Between June 1998 and October 2001, CIBC and Enron structured 34 financings as “asset sales” for accounting and financial reporting purposes, allowing Enron to hide from investors and rating agencies the true extent of its borrowings, the SEC said. Enron used these disguised loans to boost its earnings by more than $1 billion, to inflate operating cash flows by almost $2 billion and to avoid disclosure of more than $2.6 billion in debt on its financial statements, the agency noted.

This marks the 11th separate action that the SEC has brought in connection with the Enron scandal since the company declared bankruptcy in December 2001, the commission said. As a result, it estimated it has raised more than $400 million for the victims of the Enron fraud.

The SEC’s action was coordinated with a Justice Department settlement against CIBC. Federal prosecutors said the bank has accepted responsibility for the criminal conduct of its employees in connection with a series of structured financial transactions with Enron, and has agreed to cooperate fully with the continuing Enron investigation.

As part of the deal with Justice, CIBC is barred from engaging in most structured finance transactions with U.S. public companies over the next three years. In addition, CIBC has agreed to create a new committee, the Financial Transaction Oversight Committee, to review end-of-quarter and year-end transactions effected by a third party with the bank.

CIBC also will pay for a monitor, the Stamford, CT-based law firm of Day Berry and Howard, to review and oversee CIBC’s compliance with the agreement for three years. The monitor will report directly to the Justice Department.

As long as CIBC abides by the terms of the agreement, the Justice Department said it will not prosecute the bank. In September, the department reached a similar agreement with Enron auditor Merrill Lynch & Co.

©Copyright 2003 Intelligence Press Inc. All rights reserved. The preceding news report may not be republished or redistributed, in whole or in part, in any form, without prior written consent of Intelligence Press, Inc.