Lead Plaintiff's Opposition to CSFB MSJ 11/13/06 - The ENRON Fraud

including debt/equity ratios and coverage ratios, were all manipulated in Enron’s favor. Through
use of the transactions, Enron’s financials understated its debt, overstated cash flow from
operations, understated financing cash flow and overstated equity and income. In addition, the
majority of the transactions CSFB engaged in were executed at or near the end of Enron’s
reporting periods – positively, but falsely, impacting Enron’s financials as publicly reported.
Specifically, CSFB deceptively structured, designed, funded and/or otherwise engaged in the
following transactions:
A. CSFB Transactions
• Related-Party Transactions: CSFB, as one of only two limited partners,
structured and capitalized through a sham entity, CSFB’s Enron Rhythms
Netconnections Bet (“ENRB”), the now notorious LJM1 partnership, designing it
specifically to falsify Enron’s financial statements by allowing the Company to
establish a fake hedge against a position in a volatile Internet stock – Rhythms
Netconnections. 2 This fake hedge alone was used by Enron to avoid a $135.5
million writedown in FY99. Even CSFB’s supposed status as an “investor” in
LJM1 was itself a fiction – as the Bank’s purported “investment” in LJM1 was in
reality not “at risk,” but only appeared to be. 3 CSFB also provided a bridge loan
to LJM LP to complete the sham Cuiaba purchase and fund Osprey, which CSFB
internally identified as a vehicle to “raise disguised debt for Enron” and “an off
balance sheet parking lot for certain assets.”
2
CSFB’s involvement in LJM2, as defendants have argued, was vastly different than
LJM1. CSFB committed funds to LJM2 and extended additional credit to allow LJM2 to engage
in sham asset “sales.” While these activities help establish scienter, plaintiffs are not asserting a
stand-alone primary violation for CSFB’s involvement in LJM2.
3
As CSFB’s Ivers testified, the “[p]rimary objective was the hedging of a long position
that Enron owned in a then public company called Rhythms Netconnections” and “CSFB over
time negotiated certain changes in structure, documentation and so forth.” 12/1/04 Deposition
Transcript of Richard Ivers (“12/1/04 Ivers Depo. Tr.”) at 56:5-8, 87:8-10. All deposition
transcripts, deposition exhibits, and other exhibits to this opposition are attached to Lead
Plaintiff’s Appendix in Support Lead Plaintiff’s Opposition to the CSFB Defendants’ Motion for
Summary Judgment and Memorandum of Law in Support of CSFB Defendants’ Motion for
Summary Judgment (Docket Nos. 4824 and 4825) filed concurrently herewith. Enron’s Fastow
explained to the CSFB and Royal Bank of Scotland (“RBS”) bankers that their investment did
not have equity risk. Rather, it had credit risk analogous to that of a Reg-U loan. Declaration of
Andrew S. Fastow (“Fastow Decl.”) (Docket No. 5048), 51.
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