Democratic Senate leaders have put Wall Streets relationship with Enron and potential financial conflicts of interest at the top of a broad Enron-related legislative agenda that was announced last week. Meanwhile, the House committee leading the Enron investigation is gathering documents and preparing to summon Wall Street executives.

These Congressional inquiries, still in their early stages, will examine the way Wall Street firms structured and sold Enrons limited partnerships. They also will look into the reasons Wall Street firms were issuing recommendations to buy Enron stock while they had detailed information about Enrons poor financial condition.

"Were trying to understand whether Wall Street firms had a vested interest to pump up Enron stock," says Senator Byron L Dorgan, a North Dakota Democrat and chairman of the Senate Commerce subcommittee investigating Enron. "Even as Enron was collapsing, analysts were pushing a strong buy. Did investment banks have an interest in trying to keep the stock from falling too far and was there an attempt to deceive investors?"

No date has been set for committee hearings, nor have individual firms or executives been named. But already, some members of the Congress have said they would like to examine arrangements involving Merrill Lynch, which underwrote and invested in some of Enrons off-the-books partnerships; Citigroup, which structured some of the deals to remove poorly performing assets from Enrons balance sheet; and Alliance Capital, which aggressively bought Enron shares for public pension funds as the stock tumbled in value.

"You can expect to see some Wall Street investment bankers and stock analysts coming before our committee soon," says Representative Diana L DeGette, a Colorado Democrat and member of the main House subcommittee investigating Enron. "The whole Enron situation is ripe with conflicts of interest and Wall Street is no exception. We want to explore how much those conflicts lead to the huge overvaluation in Enron stock."

Among the questions to be explored is whether Wall Street firms urged investors to buy Enron shares in order to protect their relationships with Enron. Others will ask why some investment banks had an accurate picture of Enrons poor financial health but did not share it with their own customers.

Still others will look at whether Enron pressured Wall Street firms to push Enron shares into clients portfolios or to put money into Enron partnerships. In addition, lawmakers will raise the question of whether Wall Street helped facilitate Enrons deceptive financial practices.

"We cannot say that we have evidence of wrongdoing," says Representative James C Greenwood, a Pennsylvania Republican and chairman of the House Energy and Commerce subcommittee leading the Enron investigation, "but we certainly have concerns."

Yet taking on Wall Street is not an easy matter. Not only has Wall Street been a leading campaign contributor, but it supports a powerful lobbying force with considerable influence. For example, it took more than 17 years for the banks and brokers finally to agree on a modernization of securities laws.

For that reason, the Congress may tread carefully. "This is not going to be an investigation of all firms," Senator Dorgan said. "But investment banks were enabling the Enron partnerships and participating in them, and we need to understand what happened."

Dozens of Wall Street firms were involved in financing Enrons rapid rise, selling its stocks and bonds, arranging acquisitions and, later, putting together the off-the-book deals that masked Enrons true financial condition. In doing so, these firms earned tens of millions of dollars in fees and put billions of dollars of Enron securities into the market.

They helped Enron on the way up and on the way down. As Enrons downward spiral began, Wall Street firms among them Credit Suisse First Boston, Citigroup and Deutsche Banc Alex Brown helped finance Enrons side partnerships that removed lagging assets from the companys balance-sheet. In these deals, the banks arranged partnerships that allowed Enron to appear more profitable than it actually was and then sold several billions of dollars in bonds backed by Enron stock.

In other cases, dozens of banks and brokerage firms were approached about investing in Enron side partnerships and were shown confidential documents disclosing the extent of Enrons off-balance-sheet deals. Yet this information was considered confidential and not shared with Enron shareholders or clients of these Wall Street firms.

One of these firms was Merrill Lynch, the nations largest retail broker, which was the underwriter of a partnership called LJM2. Other LJM2 investors all of whom had more information about Enrons finances than Enron shareholders were Citigroup; Travelers Insurance, a Citigroup unit; an investment group affiliated with Morgan Stanley Dean Witter; and a group of Merrill Lynch executives.

A spokesman for Merrill Lynch, Joseph Cohen, says: "There is no need for us to comment. Our dealings with Enron were proper." John Meyers, a spokesman for Alliance Capital, which was the largest institutional holder of Enron shares, says: "Given the information available at the time, we consider our investment to be reasonable." Citigroup declines to comment.

Speaking for the industry, Marc E Lackritz, executive vice president of the Securities Industry Association, said Wall Street, too, was hurt by the Enron collapse. "We hope that Wall Street will not be pilloried. Weve been victimised like other investors. Our analysts were stonewalled and lied to and didnt have adequate information. We were victims, too."

Securities experts say this line of Congressional inquiry highlights ways that safeguards put into investment banks to protect confidential information can hurt investors. Some experts, like Arthur Levitt, former Securities and Exchange Commission chairman, have even suggested that Wall Street firms refrain from making stock recommendations on companies whose deals they are financing.

"Clearly, when you see analysts recommending a buy after the company has declared bankruptcy," Levitt says, "and when you see many of these schemes devised by investment banks, there are quite a number of items that bear looking at. Firms may very well consider not doing research on companies they have an underwriting relationship with."

At the heart of many of the Congresss questions is the so-called Chinese Wall that prevents Wall Street firms providing investment banking services to Enron, or any other corporate client, from sharing financial information with their own stock analysts who make buy and sell recommendations on stocks.

"One of the questions to be investigated is whether we need to keep some information flowing between the two sides of a firm," says John Coffee, a securities law expert at Columbia. "One side of the firm knows it is dealing with a highly risky leveraged company, but the colleagues across the office are putting out a very bullish recommendations, which they would not do if they knew about the risk."

Joel Seligman, a securities expert and dean of the Washington University Law School, says if the Congress is considering eliminating potential conflicts within accounting firms, it should consider the same for investment banks. "There should be a systematic prohibition on a firm recommending a stock while it is being underwriting. Perhaps we should go further and have investment banks chose whether to provide brokerage or underwriting, but not both."

That proposal may get a hearing in Washington. "It''s not a bad idea," says Representative DeGette. "It''s the same thing as with the accountants."