Footnote 8

layer of corporate debt in addition to debt accounted as such,” CITI-B 00616908. After reviewinga prepay transaction, one Citigroup employee pointedly questioned: “[G]iven that the flows on theprepaid oil swap, caps and floor all net down to the $475mm payment at maturity and a coupon of7.474%, was there a reason not to simply structure it as a loan or note?” CITI-B 00499574. Whenanother Citigroup employee foolishly asked about the price of the commodity involved in thedisguised loans, the comment back was, “since this is all a circle, why does it matter?” CITI-B0069416.291. The SEC found that[i]f all the contracts [in a given prepay transaction] were performed pursuant to theirterms, Citigroup was entitled to receive repayment of its prepayment of the contractprice, together with a negotiated return on that amount, on a specified schedule – i.e.,the equivalent of an interest payment on the contract price. The negotiated returnwas unrelated to any price risk associated with owning a commodity contract.SEC Citigroup Order at 3. The Chief Investigator for the PSI concurred: “[W]hen all the bells andwhistles are stripped away, the basic transaction fails as a prepay and what remains is a loan toEnron using a bank and an obligation on Enron’s part to repay the principal plus interest.” RoachPSI Testimony at 1.292. Not only did Citigroup and Citibank know that the prepays were loans, they alsoknowingly made misrepresentations to Arthur Andersen that facilitated the improper accounting forthe transactions. Andersen told the Insiders that to obtain the desired accounting treatment, the passthroughentity had to have a legitimate business purpose for entering into the transaction and hadto be independent of the financial institution participating in the prepay. After being made awareof Andersen’s advice to Enron, Citigroup twice caused Delta to represent to Andersen that Deltasatisfied the business purpose and independence requirements – even though Delta clearly did not.The Enron Examiner has indicated that the evidence is unclear as to whether Andersen relied uponthese misrepresentations. Exam. IV, App. B at 73-76. According to the Enron Examiner, Citigroup604041v1/007457-90-