Footnote 8

Enron reported cash flow from operating activities of $4.779 billion. Without the Chase prepays,that number would have been $3.798 billion – 21% lower. The prepays had an equally strikingimpact on Enron’s reported debt. In 1999, Enron reported debt of $8.152 billion. Had the thenoutstandingChase prepays been included, the number would have risen to $9.481 billion – anincrease of 16%. In 2000, Enron reported debt of $10.229 billion. Had the then-outstanding Chaseprepays been included, the number would have risen to $12.539 billion – an increase of 23%. Asthe Enron Examiner found, these “[r]educed operating cash flow and increased debt levels wouldhave resulted in credit ratings lower than those enjoyed by Enron during this period.” Exam. III,App. E at 22.366. To Chase, the Mahonia prepay transactions were – in the words of Chase employees– “smoke and mirrors.” Deposition S. Aultman, JP Morgan Chase at 142-47 (Aug. 6, 2002) (quotedin Exam. III, App. E at 20-21 & n.70). This “trick” (as the Examiner called it) materially inflatedEnron’s financial statements from at least 1997 until bankruptcy. The transactions were timed tocause Enron to meet key financial targets critical to the maintenance of Enron’s credit ratings andthe expectations of the market. In each case, the prepaid amount was determined not by theInsider’s desire to sell oil or natural gas, but by the amount of cash flow needed to achieve thedesired ratings and market reviews. In each case, the transaction was arranged on the eve of theclose of a fiscal period for Enron and closed within days or hours of the end of the quarter or year.Without the Chase prepays, in many quarters during the relevant period, Enron would not have metor exceeded the targeted financial results of the analysts or the market, and Enron’s credit ratingswould have been downgraded.367. Recently, Chase – like Citigroup – renounced the practices and policies throughwhich Chase had aided and abetted the Insiders’ misstatement of Enron’s financial condition. In604041v1/007457-122-