Footnote 8

financial statements improperly reported $144 million of pre-tax income from the Steele andCochise transactions.480. BT/Deutsche Bank developed Steele and promoted it to Maxey in June 1997. Thetransaction was designed to create $121.8 million of pre-tax financial statement income for Enron.As Enron’s exclusive financial advisor in the transaction, BT/Deutsche Bank’s contract called fora fee of $10 million. BT/Deutsche Bank engaged Arthur Andersen to assist in manipulating theaccounting aspects of the transaction. BT/Deutsche also invested in the SPE formed to implementthe Steele tax transaction (receiving partnership equity), contributed the REMIC assets to the SPE,and brokered the corporate bond portfolio acquired by the SPE and used by the Insiders toimproperly shorten the period of time over which the deferred credits were amortized.481. The stated (as opposed to designed) purpose of Steele was to acquire and manage aportfolio of financial assets with an enhanced earnings profile. But the low-yielding nature of thefacilitating assets in the transaction (a portfolio of corporate bonds), as well as Enron’srepresentation that it would not have closed Steele but for its accounting benefits, make clear thatthis purpose was a sham.482. Maxey and BT/Deutsche Bank understood exactly how and why Steele wasconstructed. They knew – because they developed and promoted it – that the transaction was meantto improperly generate financial accounting benefits by amortizing a large portion of the deferredtax credit associated with the acquisition of the REMIC Residual Interests into pre-tax accountingincome over the life of five-year corporate bonds. The amortization of the associated tax benefitinto pre-tax income, combined with the artificially short period of time over which that amortizationwas conducted, made the transaction particularly aggressive and misleading. As Maxey testified,the low-yield corporate bonds were acquired simply to provide an artificially short useful life of five604041v1/007457-155-