Published on Gold Anti-Trust Action Committee (http://www.gata.org)

BIS data suggests a much bigger central bank gold short position

By cpowell
Created 2002-12-04 08:00

10:27a ET Wednesday, December 4, 2002

Dear Friend of GATA and Gold:

It's hard to read the following Reuters account of the
Morgan Chase insurance fraud trial as anything less
than a confession of deceptive and manipulative
practices on a grand scale. Could such practices be
entirely absent from Morgan Chase's huge gold
derivatives position?

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

* * *

J.P Morgan Admits 'Circular' Enron Deals
Tuesday December 3, 2002
http://biz.yahoo.com/rb/021203/financial_jpmorgan_enron_2.html [1]

NEW YORK (Reuters) -- A lawyer for J.P Morgan Chase
on Tuesday admitted the bank engineered a series of circular
deals in which Enron Corp., to suit its accounting needs, sold
gas to a Chase-owned entity and then bought it back as part
of the same deal.

The lawyer was testifying during the second day of a trial in
which J.P. Morgan Chase is suing 11 insurance firms for
refusing to pay $1 billion in so-called surety bond coverage,
which the insurers issued to guarantee the deals with Enron.

Arguments presented by the two sides are expected to shine
a light on the complex ways the now-bankrupt Enron worked
with its financiers.

The insurers, including Chubb Corp. and Hartford Financial
Services Group, have said they were misled over the true
nature of the deals, saying the transactions were really a
disguised loan to the heavily indebted Enron and that no
gas or oil ever changed hands.

Under the deals in question, J.P. Morgan, through a related
entity called Mahonia, paid $1.9 billion upfront to Enron in
exchange for a series of oil and gas shipments to Mahonia.

Mahonia, via J.P. Morgan, was then free to sell the
commodities to other companies and traders, including,
sometimes, back to Enron.

In Manhattan Federal court on Tuesday, Celia Barenholtz,
the attorney representing the insurance firms, used a string
of e-mails, memos, and flow charts to attempt to show that in
many of the deals, the gas or oil that was sold to Mahonia by
Enron ended up being sold back to Enron by Chase as part
of the same transaction.

Moreover, the deals were signed and dated the exact same
day, meaning that no physical gas or oil ever changed hands.

"The structure was totally circular, yes?" Judge Jed Rakoff
asked the J.P. Morgan Chase lawyer, Philip Levy.

"The gas that was going to be sold to Mahonia would then be
sold in a number of separate transactions, that would
ultimately be sold to Enron?" Rakoff added.

"Yes, I guess that would be circular," Levy admitted.

J.P. Morgan maintains the insurance firms knew the deals
with Enron were financing arrangements, which involved the
buying and selling of oil and gas. But they deny the deals
constitute a loan.

The insurers signed "absolute and unconditional" agreements
to pay Chase should Enron default on the deliveries or
payments for deliveries. But when Enron went bankrupt in
December 2001, Chase's lead attorney John Callagy said,
the insurance firms hurriedly met in New York and quickly
came up with an excuse for not paying.

Barenholtz argued that the only reason Chase agreed to use
Mahonia to structure the deal was because Enron had
specifically told Chase it wanted to do so for accounting

"Enron told Chase it wanted Mahonia in the picture for its
own accounting purposes, didn't it?" Barenholtz asked Levy.

"Yes," Levy replied.

The trial is expected to last for about three weeks.

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