If you read my last article you know I promised to cover Long Term Equity Anticipation Securities, or LEAPS, this week. However, I've been following a rather ugly trend that's taken place over the past several months, and after seeing a final piece of news the other night, I simply felt compelled to cover it. I'm going to push the LEAPS article to a future date, and I hope you won't be disappointed. OK, with that explanation, on with the show.

Fraud charges have erupted endlessly over the past several years, and we've written of them often. More recently however, it's the news of fraud settlements that seems to be endless. While some progress has been made -- some of the most egregious violators jailed or appropriately fined -- it appears to me that most of these settlements have relieved the violators much more than the victims.

The other day, in another such deal, Citigroup (NYSE:C) and J.P. Morgan Chase (NYSE:JPM) announced that they've successfully settled charges that claimed the companies assisted Enron in cheating billions from the investing public. Actually, to say they were successful is an understatement.

The two banks basically paid their way out of criminal charges for securities fraud, levied by the SEC and Manhattan District Attorney Robert Morgenthau, by paying a combined $300 million in fines that will go to a restitution fund for victims.

Now $300 million may sound like a large number, but let's put this in perspective: That figure is about 1.8% of both banks' combined annual net income. So, these banks failed to perform their due diligence and adequately play the role of fiduciary for their clients, potentially costing them billions of dollars, and it will only cost them 1.8% of one year's profits. Oh, and did I mention that they've collectively generated far more than $300 million in revenue from Enron alone? Wow, I bet that'll teach 'em.

Stephen Cutler, the SEC's enforcement director, said, "These two cases serve as yet another reminder that you can't turn a blind eye to the consequences of your actions." Perhaps not, but who needs to turn a blind eye when you can just pay your way to freedom every time you run afoul of the law -- and for a pittance, no less.

I don't mean to be too hard on Mr. Cutler, as I truly believe he's doing his best. When it comes to some of the other attorneys involved in these cases, however, I'm not sure what disappoints me more: the actual results of the cases or the political grandstanding of the attorneys who negotiate such "victories" in order to parade themselves in front of millions of eligible voters.

The bigger ticket item
It's true that the banks' actions could cost them much more in the end, as they still face countless private lawsuits. Further, a 1,000-page report issued by court-appointed bankruptcy examiner Neil Batson claims there is ample evidence that Enron's bankers -- including Citigroup, J.P. Morgan, Barclays Plc (OTC: BTLYF), Deutsche Bank (OTC: DTBKY), and Merrill Lynch (NYSE:MER) -- were not only aware of the company's "wrongful conduct," but "aided and abetted" the activity.

That means all of these banks stand to lose their place at the top of the creditor totem pole, risking $5 billion in claims against the broken company's assets. Of course, if these charges are valid, one could hardly argue that the banks have a right to those assets, as they entered into the deals with eyes wide open -- an option not available to most of the other creditors. When you dance with the devil, you risk getting burned, as they say.

But we didn't know
Batson's report also decimates the banks' contentions that Enron somehow duped them, just like everyone else, by identifying several examples of damning email correspondence.

In one email, a senior Citi accountant objected to a transaction referred to as a pre-pay, which helped Enron make loan proceeds look like revenue. The bank took his objection to heart, and then engaged in more than 60 of the deals. According to the Financial Times, these transactions accounted for 76% of Enron's reported cash flow in 1997. In another email, Citi's derivatives executive, Paul Deards, referred to pre-pays as "simply manipulating cash flows."

A J.P. Morgan Chase senior executive wrote, "We are making disguised loans, usually buried in commodities or equities derivatives... they are understood to be disguised loans and approved as such." Yep, those poor banks just didn't have a clue as to what they were getting into, huh?

The report also shoots holes in their defense that they simply relied on the auditor's picture of the company in making their decisions, pointing out that crucial financial information was often withheld from auditor Arthur Andersen, but provided to the banks themselves.

But even without the smoking gun, would we really buy that these guys didn't know what they were doing? I mean, these are banks, for goodness' sake. These companies are lending billions and we're supposed to believe they didn't pore over every detail of every financial statement they could get their hands on?

When was the last time you sat down across from the lender at your local branch only to hear her say, "Credit? Oh no, we don't bother checking that anymore. Research is soooo five years ago. Now, would you like that in 10s or 20s?"

As I've written in the past, I'm not a fan of our overly litigious society, but in these cases, one has to ask where in the heck the accountability is. The more I see and hear about these situations, the more apparent it becomes that a lack of ethics and moral fortitude is pervasive in this business, and that disgusts me.

Actually, it does more than that. It literally pains me. It pains me because I love this business. I love everything there is to love about the financial markets, and every time I see another weak settlement without so much as an apology (i.e., "Citigroup and J.P. Morgan settle but admit no wrongdoing"), I feel like I've been punched in the gut by everyone involved in this mess.

Don't get me wrong; nothing will change my passion for this business. Yes, fraud has ridden roughshod over Wall Street, but I still love this great legal and financial system of ours, if only because there's nothing in the world better. But that doesn't mean there isn't room for improvement.

When the attorneys general spend less time creating new -- and inherently flawed -- investment-banking research procedures, and more time putting Enron's Skilling and Fastow in prison stripes, I'll say we've made progress.

The end of a disappointment
If I had to find a bright side to the lack of true repercussions for these banks, I suppose I would say that I know a lot of good people who owned shares of Enron who now own shares of Citigroup and J.P. Morgan. And at least those good people won't be hurt a second time by having their investment in these "respectable" companies wiped out, too.

Somehow, though, I think even those good people would say that's little consolation for what's truly been lost here. I guess honesty and character are soooo five years ago.

Mathew Emmert isn't as negative as he sounds in this article. In fact, he's quite the ray of sunshine. He doesn't own shares in any of the companies mentioned here, but if you'd like to see what he does own, check out his profile. The Motley Fool has a disclosure policy.