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

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Salamander.” CSFB deceptively structured share trusts to make it appear monies and/or certificates were at risk, deceiving the credit-rating agencies and hiding billions in debt. Finally, CSFB structured the deceptive Rawhide minority-interest transaction which concealed an additional $750 million in debt from the credit-rating agencies and the investing public. Indeed, because CSFB “was among the very best at structured finance,” it was a “go-to” bank for Enron. 10/24/06 Deposition Transcript of Andrew S. Fastow (“10/24/06 Fastow Depo. Tr.”) at 433:1-21. Aside from undertaking deceptive actions subjecting it to primary scheme liability, there is no question that CSFB undertook these activities with scienter, deceiving investors and at times Enron’s own auditors, Arthur Andersen. C. CSFB Acted with Scienter Through its investments in LJM1 and LJM2, CSFB was aware of Enron’s use of noneconomic hedges, such as those in the LJM1/Rhythms Hedging Transaction and the LJM2/Raptor Hedging Transactions, and asset warehousing transactions such a Cuiaba, and how these transactions impacted Enron’s reported financials. Through its involvement in Enron’s many failed asset sales, CSFB had first-hand knowledge that many of Enron’s assets could not be sold at prices that would avoid requiring Enron to record a loss. Through its participation in the share-trust transactions and its knowledge of Enron’s use of non-economic hedges, CSFB also was aware of the severely negative consequences that a decline in Enron’s common stock price would have. Through its participation in the share-trust transactions, the FAS 125/140 transactions and the CSFB Prepays, CSFB knew that Enron’s financial statements did not reflect billions in debt improperly treated as off-balance sheet obligations. Moreover, CSFB was aware that many of these transactions were exceedingly complex and not transparent to the marketplace, noting - 6 -
internally that Enron’s reporting was as “clear as mud.” Ex. 15918 (11/22/00 email from Salles to Launer). CSFB’s understanding of Enron’s true financial condition is also illustrated by CSFB’s conduct in the final months leading up to Enron’s bankruptcy. While maintaining a strong buy recommendation and proposing to Fastow that Enron divide into two companies – one regulated and one unregulated – CSFB bought large amounts of credit protection, accelerated the process of reducing its Enron exposure to $500 million and then to $300 million (and in fact reduced it to $167 million) and, in September and November of 2001, completed the Nile transaction and renewed the CSFB Prepay without incurring additional credit exposure to Enron; and reduced its holdings of Enron debt. Finally, mindful of this Court’s earlier rulings as to liability arising from false and misleading analysts’ reports, Lead Plaintiff asserts the actions and knowledge of CSFB’s analysts and investment bankers present a different situation. Here we have specific knowledge by the analysts issuing the reports that the reports were false and misleading. Further, reports were reviewed and revised by CSFB’s investment bankers. Thus, scienter is clearly established and the reports give rise to representational Rule 10b-5(b) liability in addition to scheme liability under Rule 10b-5(a) and (c). Specifically, the evidence is that CSFB equity analysts, while maintaining a strong buy to the investing public on the stock, noted internally that Enron could not seem to tell the truth and recommended that friends and family avoid the stock. In addition, when CSFB analyst Jill Sakol wanted to lower her “attractive” rating on Enron debt, CSFB prevented her from doing so. 12 As 12 These false and misleading statements are deceptive acts in furtherance of the scheme and should be considered in determining CSFB’s overall role, which, as noted above, went above and beyond even their brethren Tier One Banks. - 7 -
Page 1 and 2: UNITED STATES DISTRICT COURT SOUTHE
Page 3 and 4: Page (2) Nile: Fake “Sale” of A
Page 5 and 6: Page (1) DLJ Concealed Transfer Res
Page 7 and 8: Page 4. CSFB’s Control Over Its S
Page 9 and 10: - viii - Page City of Monroe Emps.
Page 11 and 12: - x - Page In re Enron Corp. Sec. D
Page 13 and 14: Page Kunin v. Feofanov, 69 F.3d 59
Page 15 and 16: Page Simpson v. AOL Time Warner Inc
Page 17 and 18: Lead Plaintiff The Regents of the U
Page 19 and 20: • Prepays: These were loans CSFB
Page 21: “‘Wrongdoers could studiously a
Page 25 and 26: order to engage in structured-finan
Page 27 and 28: A. Well, Enron had a problem in tha
Page 29 and 30: CSFB denies making exorbitant retur
Page 31 and 32: activities of one of the banks at t
Page 33 and 34: ‘informing the district court of
Page 35 and 36: There is long-established doctrine
Page 37 and 38: e “construed not technically and
Page 39 and 40: CSFB argues throughout its brief th
Page 41 and 42: Enron, 310 F. Supp. 2d at 830. The
Page 43 and 44: Judge Kaplan rejected the defendant
Page 45 and 46: Id. at 625-26. The Court upheld the
Page 47 and 48: Order. And because of this Court’
Page 49 and 50: [R]egarding Credit Suisse First Bos
Page 51 and 52: a. Related-Party Transactions (1) L
Page 53 and 54: Rhythms Stock, and trading was thin
Page 55 and 56: NatWest. 49 The remaining limited p
Page 57 and 58: Ogunlesi Depo. Tr. at 294:25-295:15
Page 59 and 60: Diagrammatically, the transaction a
Page 61 and 62: This transfer, however, was a sham.
Page 63 and 64: As to LJM LP, CSFB contributed $7.5
Page 65 and 66: false appearance of fact.” Homest
Page 67 and 68: transaction “created the appearan
Page 69 and 70: A. Yes. Q. It came from CSFB or an
Page 71 and 72: Q. How were ERNB’s activities con
Page 73 and 74:
inherently deceptive nature of the
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To give the appearance that Enron w
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test). LJM LP was considered a sepa
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and to disguise debt, Enron engaged
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CSFB 2000 Prepay Morgan Stanley $15
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Ex. 40330 (12/30/01 SEC Complaint a
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price risk for the counterparties,
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fluctuated with the price of oil. U
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of commodity swaps, commodity price
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Q. So the transaction being complet
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against any credit loss on the deal
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10 required that there existed “t
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employees who worked on the 2000 Pr
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Q. And Mr. Wootton was adamant that
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Equally unavailing is CSFB’s obse
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Where a wrongdoer, intending to dec
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CSFB never directly misrepresented
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(2) Year 2001 Fake Oil “Prepay”
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As with the 2000 Prepay, the eviden
Page 111 and 112:
Thus, just as with the 2000 Prepay,
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Under these Standards, an issuer co
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funds from an SPE called Salamander
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10/29/04 Deposition Transcript of D
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EC35628A0051089. CSFB knew the Igua
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expected return on the deal - even
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a fiction, namely” (id. at 504) t
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A. I think in this case it wasn’t
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Id. at 710:25-711:9. Thus, one clea
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CSFB and issuing $1 million of Cert
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fact, both aspects of the Nile tran
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Ex. 10211 at CSFBCO0005423523 (Augu
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that the transaction was really a l
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A. No. Q. To your knowledge, did an
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Bass Depo. Tr. at 433:6-434:1; 11/3
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crap” from the ServiceCo valuatio
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Such deceptive conduct as well clea
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in the deal. Defs’ Mem. at 40. Th
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CSFB that “permitted [Enron] to r
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As with Iguana and Nile, Nikita fai
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Last business day of each calendar
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But also, CSFB is additionally liab
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knew was truly not at risk it, as d
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Solomon explains 157 that in the Ra
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funds to ENA. The loan between Sund
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our credit risk is now directly 100
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Depo. Tr. at 67:4-7. These three de
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share-trust structure, Enron could
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Solomon App. at 279. 177 The Osprey
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The Condor Share Trust (“Condor
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paid to the outside investor by the
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the assets from Enron. Enron had bu
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A. Yes. That was part of the struct
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elated party to Enron, this “equi
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A. Yes, I did. Q. (BY MR. HOWES) An
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was a sham entity because it purpor
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DLJ Employees DLJ Capital Corp LJM2
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So DLJ would furnish the false appe
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and $42.5 million of debt for the $
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A. None that I recall. 8/1/05 Capol
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ules were violated is sharply contr
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Issuer entity) issued $1.024 billio
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Diagrammatically, Marlin I appeared
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DLJ knew the purpose of its Marlin
Page 199 and 200:
A. Structurally, yes, absolutely, c
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CSFB further worked to execute Marl
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to demonstrate simply that CSFB kne
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F.3d 1061, 1068 (5th Cir. 1994); an
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CSFB was no doubt highly interested
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7/21/04 Moran Depo. Tr. at 209:4-10
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ServiceCo - what it acknowledged as
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CSFBCO005534606; Ex. 13923 at CSFBL
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“55.6% of the equity in Rawhide I
Page 217 and 218:
Q. And the client was Enron? A. Yes
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The Firefly transaction is further
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Solomon Report at 301. CSFB knew th
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on Enron’s investors - as long as
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(Overview of Pricing for Marlin Wat
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170 F.3d 518, 534 (5th Cir. 1999).
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concerning Enron during the Class P
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emained strongly bullish until Enro
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* * * A. I think I’m just saying
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(“Sicoardi”) it was a great buy
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financials: “I should have taken
Page 239 and 240:
According to Sakol, “there was an
Page 241 and 242:
Q. And you said to them, I want to
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A. No. 8/26/05 Deposition Transcrip
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Q. But you knew at the time, in 199
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13097A. The questions were sent not
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Securities Laws §12:2 at 12-9-12-1
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3. CSFB Breached Its Duty to Disclo
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debt within the Nighthawk structure
Page 255 and 256:
. The Osprey I Offering Circular Co
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eference to “Project Leftover,”
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(Interrogatory Response Nos. 5 & 6)
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(3) DLJ Concealed the Fact Enron Ne
Page 263 and 264:
f. The Osprey II Offering Circular
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atios were not met and the “BBB
Page 267 and 268:
These statements were removed from
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g. DLJ/CSFB Concealed LJM1 and LJM2
Page 271 and 272:
“Permitted Investments to Date”
Page 273 and 274:
Solomon Supplemental Report, Schedu
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Offering Circulars because the “r
Page 277 and 278:
k. Plaintiffs Have Standing to Asse
Page 279 and 280:
CSFB argues “Dr. Nye admits that
Page 281 and 282:
Marlin and Osprey offering memorand
Page 283 and 284:
E. CSFB’s Conduct Was “In Conne
Page 285 and 286:
F. There Is a Genuine Issue of Mate
Page 287 and 288:
[Enron] would be unable to service
Page 289 and 290:
Company’s “reports of current r
Page 291 and 292:
counterparties. Nye Report, 51. But
Page 293 and 294:
As documented and considered by Dr.
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U.S. Dist. LEXIS 41240, at *63-*64)
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(FACC 450). These allegations sketc
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2. Lead Plaintiff Need Only Show th
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NAME Title at CSFB (USA) Title at C
Page 303 and 304:
structuring specialists in New York
Page 307 and 308:
WOLF POPPER LLP ROBERT C. FINKEL 84
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Lead Plaintiff's Opposition to CSFB MSJ 11/13/06 - The ENRON Fraud

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