Merrill initially bought the barges, selling them back to Enron only six months later. Because, it was contended, the sell-back agreement was in place at the time of the original purchase, Merrill never assumed the risk of ownership, so the deal amounted to little more than a loan.
Furthermore, Merrill was accused of failing to discharge its duty to the wider financial markets by ignoring concerns expressed by one of its bankers that Enron might use the deals to manipulate its accounts. In its defence, Merrill has argued that no sell-back deal was ever in place.
While the agreement is yet to be finalised, it is not known whether the SEC will enforce any procedural changes at Merrill to avoid a recurrence of the problem in future. The affair, which led to Tom Davis, the former Merrill vice-chairman who refused to testify in the investigative process, leaving the firm, is expected to end Merrill’s connections with the failed energy company.