NEW YORK (CNN/Money) - Merrill Lynch & Co. Inc. defended its past relationship with Enron Corp. Tuesday, even as two of its executives invoked the Fifth Amendment, saying it believed that the bankrupt energy trader, one of the largest U.S. companies at the time of its interaction with Merrill, was telling it the truth.

Merrill executives G. Kelly Martin and Schuyler Tilney, along with former executive Robert Furst, appeared before the Senate Permanent Subcommittee on Investigations, which is looking into the role of prominent Wall Street banks in the collapse of Enron.

But Furst and Tilney, who had direct involvement with the Enron transactions being investigated, invoked their Fifth Amendment right to avoid self-incrimination.

Tilney said he'd cooperated fully with congressional investigators until he learned that one of the transactions in which he was involved was the subject of a Justice Department probe.

Then, he "reluctantly" accepted his lawyer's advice not to testify Tuesday, after which Merrill placed him on paid administrative leave.

Unlike Furst and Tilney, Martin did testify, but he admitted to having no first-hand knowledge of the transactions in question. Instead, he read Merrill's prepared statement about the transactions and said he was prepared to discuss general Merrill policies regarding such deals.

"Merrill Lynch strongly believes that our limited dealings with Enron were appropriate and proper based on what we knew at the time," Martin said. "At no time did we engage in transactions that we thought were improper."

"Had we known at the time what we know today, we would not have conducted business with Enron," he added.

Tuesday's hearing focused on three topics: Merrill's involvement in a transaction involving energy barges; its involvement in the infamous LJM2 partnership, which Enron used to help it hide debt; and its research coverage of Enron.

In December 1999, Enron sold shares of a company that owned three energy generating barges to Merrill, which entitled Merrill to some of the cash flow from those barges.

Merrill said the sale was made with the understanding that an Asian company not related to Enron would buy the shares back from Merrill. Instead, LJM2 bought the shares six months later.

Congressional investigators say the deal was a scheme by which Merrill "bought" an asset to temporarily boost Enron's cash flow, with the understanding that Enron would buy the asset back after filing its financial report for 1999, while also hiding the barge assets off its balance sheet.

"Merrill knew full well that Enron was trying to structure deals so that debt was hidden off balance sheet and cash flow was manufactured," said committee Chairman Sen. Carl Levin, D-Mich.

Levin produced internal Merrill documents that seemed to show it fully expected to be paid back by Enron, within six months, its $7 million investment plus a 15 percent rate of return.

Merrill (MER: down $0.42 to $35.83, Research, Estimates) said the deal, which was only a small portion of its own business and Enron's total revenue for 1999, was fully vetted by an internal committee and by Enron's auditors, that it trusted Enron would properly report the deal and that it had no guarantee that LJM2 or any other entity would buy the barge shares back.

Merrill, in exchange for $3 million in fees, acted as a private placement agent for LJM2, an off-balance-sheet partnership operated by former Enron CFO Andrew Fastow.

LJM2 has been cited as one of several off-balance-sheet entities used by Enron to hide debt and assets. Merrill said its internal review found its LJM2 relationship to be legitimate, and it was assured of that by Enron.

Merrill noted that it and 96 of its employees invested about $21.6 million in LJM2, money it might never see again.

Congressional investigators also said a Merrill Lynch research analyst, John Olson, had been fired by Merrill Lynch for refusing to raise his investment rating on Enron.

Investigators cited an internal Merrill Lynch memo dated April 1998 that indicated Enron was refusing to give Merrill Lynch business because it was unhappy with Olson's "neutral" rating on Enron stock.

Merrill said its then-president, Herb Allison, called Enron to ask the company to reconsider its position -- which it did, Merrill said. Merrill also said Olson's rating on Enron stayed the same even after this incident, until he left the firm in August 1998.

In November 1998, the new Merrill analyst for Enron rated the company's shares "accumulate" -- a rating Olson also gave Enron in October 1998, at his new job, Merrill said.

Merrill also said its analysts were among the first to downgrade Enron in August 2001.

"At no time was Merrill Lynch's research compromised," Martin said in his prepared testimony. Olson, Merrill said, was let go because of a reorganization of its research department.

Earlier this year, Merrill agreed to a $100 million settlement and made changes in its research department as a result of conflict-of-interest charges brought by New York Attorney General Eliot Spitzer.

On Monday, the CEOs of two Merrill competitors, J.P. Morgan Chase & Co. (JPM: down $0.45 to $24.65, Research, Estimates) and Citigroup Inc. (C: down $0.19 to $33.12, Research, Estimates), signed affidavits to congressional investigators denying knowledge of any wrongdoing by their firms in their dealings with some other Enron transactions.

In December, Enron filed what was then the largest bankruptcy in U.S. history, revealing billions of dollars in debt it had previously hidden through a complex web of transactions.

Stock in the company, once the seventh-largest in the United States, with close ties to President Bush and others in his administration, plunged after the bankruptcy filing, hurting many employees whose retirement plans were tied up in Enron stock.

The Securities and Exchange Commission, the Justice Department and other agencies are investigating the collapse, and the Senate subcommittee has been focusing on the role of Wall Street banks in helping Enron set up its complex financing.