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it was “purchasing the Natural Gas for resale to third parties.” Id. at EC001058442. As both Chaseand the Mahonia Entities knew, none of these representations was true.363. Moreover, in September 1998, Chase helped spread the fraud. As the ChiefInvestigator for the PSI explained in his testimony to Congress, the basic structure of the Mahoniatransactions hadPSI at 245.two key credit support mechanisms to guarantee the parties’ obligations, thusremoving the performance risk in favor of Chase. First, Enron provide[d] anunconditional guarantee for the obligations of its subsidiary to Chase (throughMahonia). Second, the Enron guarantee [was] supported by either a PerformanceLetter of Credit (“PLC”) with Enron as the account and Mahonia as the beneficiary;or by surety bonds issued by insurance companies. The PLC amortize[d] accordingto the amortization schedule of the Enron subsidiary’s delivery of gas to Mahonia.That is, if Enron default[ed] on its guarantee, drawings on the PLC [would] matchthe amount outstanding on the prepay amortization schedule. Enron [paid] the PLCfees, which [were] determined according to Enron’s senior debt rating.364. In September 1998, the Insiders asked Chase to agree that the Insiders could replaceexisting PLCs in the prepays with surety bonds that guaranteed Enron’s delivery performanceobligations. The bonds guaranteed that if Enron defaulted on its obligations to Chase (or Mahonia),insurance companies would pay. Because Enron would no longer be the guarantor, the changewould have the effect of freeing up capacity at Chase to do additional deals with Enron. Chaseagreed to the change. Enron, of course, did eventually fail to meet prepay repayment obligationsto Chase – and Chase promptly sued the insurance companies on the bonds. The insurancecompanies defended against those claims on the ground that the prepay transactions were nothingmore than complicated and undisclosed loans from Chase to Enron, using the Mahonia Entities aspass-through vehicles.365. Enron reported cash flow from operating activities in 1999 of $1.228 billion.Without the Chase prepays, that number would have been $880 million – 28% lower. In 2000,604041v1/007457-121-