Footnote 8

violated accounting rules and that Enron frequently moved its assets off-balance sheet. It also knew,as reflected in a December 9, 1998 presentation to Enron about structured financings, that Enron’stransactions were often driven by balance sheet issues.542. Because it worked on approximately 23 debt and equity offerings for Enron between1997 and 2001, Merrill Lynch developed a substantial familiarity with Enron’s financial condition.As the private placement agent for LJM2, Merrill Lynch made note of the $17 billion differencebetween Enron’s assets ($34 billion) and its “assets under management” ($51 billion). MerrillLynch clearly understood Enron’s improper use of off-balance sheet vehicles.(2) Nigerian Barge.543. The Insiders brought the Nigerian Barge transaction to Merrill Lynch in mid-December 1999. Because Enron was facing a shortfall in earnings, the Insiders needed to close thetransaction by the end of that year. McMahon explained to Merrill Lynch that Enron had attemptedto negotiate a sale of the barges to third party Marubeni, but that sale had fallen through. Enron wasin a bind, and it needed Merrill Lynch to purchase an interest in the barges before the end of themonth. McMahon informed Merrill Lynch’s Furst by memorandum that “(i) the transaction wouldallow Enron to book $12 million in earnings; (ii) Merrill Lynch’s ‘hold’ would be for six monthsor less; and (iii) the investment would yield a 22.5% rate of return to Merrill Lynch.”MLBE 0305288 (quoted in Exam. III, App. I at 25). Furst reminded Merrill Lynch that Enron wasone of its top clients, and that participating in the Nigerian Barge transaction would help MerrillLynch to stand out “from the pack” of Enron’s financial institutions. Id.544. Merrill Lynch’s Project and Lease Finance Group initially objected to the NigerianBarge transaction. Merrill Lynch’s executives, including James Brown, were aware from the startthat Enron’s accounting for the transaction might be improper. Brown knew Merrill Lynch wouldnever gain control over the barges and knew Enron would quickly take Merrill Lynch out of the604041v1/007457-180-