Footnote 8

transaction. He also wondered where Enron’s $12 million “gain” was coming from if Merrill Lynchwas only investing $7 million in the transaction. Ultimately, Brown warned Merrill Lynch’s DebtMarkets Commitment Committee that participation in Nigerian Barge posed “reputational risk, i.e.aid/abet Enron income statement manipulation.” Exam. III, App. I at 26 (quoting SwornStatement of James Brown at 62, 76-77) (emphasis added).545. Brown also expressed concern about the fact that the proposed deal did not includea written agreement that Enron would buy the barges back from Merrill Lynch. As a condition ofgoing forward with the transaction, Merrill Lynch’s Debt Markets Commitment Committeeinstructed Bayly to get oral confirmation that Enron would commit to taking Merrill Lynch out ofthe transaction within six months. Fastow provided that oral commitment in a telephoneconversation on December 22, 1999. Unsurprisingly, neither the agreement to buy back MerrillLynch’s interest in the barges nor to provide an agreed-upon rate of return on its investment wasincluded in the final written agreement – the letter agreement between Merrill Lynch and Enrondated December 29, 1999. To include either, of course, would have disclosed the intendedaccounting for the transaction was improper. Additional evidence of the Insiders’ promise to takeMerrill Lynch out of the “sale” within six months at a predetermined rate of return includes MerrillLynch’s total failure to conduct any due diligence before “buying” its interest in the barges ornegotiate the purchase price with Enron, as well as the extremely short time frame – less than twoweeks – during which the transaction was proposed and completed.546. Despite knowing that the Insiders’ intended accounting for the Nigerian Bargetransaction was improper, Merrill Lynch proceeded with the transaction. In return, Merrill Lynchexecutive Bayly made sure that Fastow understood that Merrill Lynch expected to be rewarded withsubstantial future business.604041v1/007457-181-