Footnote 8

539. From 1997 through 2001, Merrill Lynch was involved in approximately 35transactions with Enron, including “underwritings, private placements of debt and equity, structuredfinance transactions, derivative transactions, and participation as a syndicate member in severalcredit facilities.” Exam. III, App. I at 12. The volume of transactions increased dramatically afterNovember 1998, when Merrill Lynch raised its rating on Enron stock from “neutral” to“accumulate.”540. Merrill Lynch equity analysts covered Enron from 1997 through 2001. When MerrillLynch analyst John Olson lowered his rating on Enron stock in July 1997, Enron, including Fastow,pressured Merrill Lynch to change its equity coverage. Merrill Lynch executives Tilney and RickGordon understood that Olson’s equity coverage of Enron had been a cause of strain between Enronand the bank for years. In April 1998, Fastow informed Merrill Lynch that because of its equitycoverage, Merrill Lynch would not be included as a manager of Enron’s upcoming $750 millioncommon stock offering. Fastow was explicit about the fact that this action was to send MerrillLynch a strong message about how “viscerally” Enron felt about the equity coverage. Gordon andTilney wrote a memorandum to Herb Allison, Merrill Lynch’s CEO, explaining that Enron thoughtOlson’s coverage was flawed. In August 1998, Merrill Lynch fired Olson. After Olson’sreplacement upgraded Enron’s stock rating in November 1998, Merrill Lynch’s Enron businessincreased more than tenfold, measured in fees – from $3 million in 1998 to $40 million in 1999.541. Merrill Lynch knew that Enron intended to use the 1999 electricity trades and theNigerian Barge transaction to record improperly gains of approximately $60 million in the fourthquarter of 1999. The former head of Merrill Lynch’s Global Derivatives group, Jeffrey Kronthal,testified that Merrill Lynch knew Enron would book earnings of $50-60 million from the electricitytrades. Merrill Lynch also knew Enron would book $12 million in earnings from the Nigerian Bargetransaction. Merrill Lynch was well aware that Enron’s intended accounting for these transactions604041v1/007457-179-