Warburg caught in Enron fallout
UBS Warburg has been dragged into the Enron scandal after it emerged the investment bank had fired a US adviser for telling clients to sell their stock, months before the energy trader collapsed. Defying the bank's 'strong buy' recommendation on Enron, the adviser told clients they could lose 'a fortune' unless they bailed out.
The revelation is set to be used against the Swiss-owned bank in court. Two Enron investors are suing the bank's US unit UBS PaineWebber, alleging that it made fraudulent recommendations about Enron - even though its employees knew its finances were falling apart. Enron investors are already pursuing banks including JP Morgan Chase and Credit Suisse First Boston in court.
Warburg said the adviser, Chung Wu, was sacked because he failed to inform his superiors before e-mailing the recommendation to 73 clients. It said this had violated internal requirements, and rules of the National Association of Securities Dealers, the regulatory body of the securities industry.
Wu reportedly sent the e-mail on 21 August, a week after Enron chief executive Jeffrey Skilling quit. 'Financial situation is deteriorating in Enron,' broadcaster ABC quoted Wu as writing. 'I would advise you to take some money off the table...waiting to make a decision would cost you a fortune.'
At the time PaineWebber had a 'strong buy' rating on Enron, and it was trading at $37. The shares had plummeted to 61 cents by the time PaineWebber stopped recommending it in late November. Enron filed for Chapter 11 protection on 2 December after allegations of fraudulent accounting sent it spiralling downwards, costing investors billions.
According to legal papers filed in the US District Court in Houston, Wu's supervisor e-mailed clients to apologise, following pressure from Enron and senior executives at PaineWebber.
The suit also alleges the supervisor, Pat Mendenhall, acknowledged that Wu's observations were correct, but that 'putting them in writing offended Enron and that the pressure to terminate him was mounting'.
