Footnote 8

550. Merrill Lynch knew that the 1999 electricity trade was a sham electricity transaction.The call options were virtually offsetting and “delta neutral” to both Enron and Merrill Lynch.MLBE 0370936 (quoted in Exam. III, App. I at 39). Merrill Lynch knew the trades were structuredso that the options “in the money” and “out of the money” were equivalent for the two transactions.Exam. III, App. I at 38 (quoting Sworn Statement of Jeffrey Kronthal at 109-110). Merrill Lynchalso knew the Insiders intended to use the 1999 electricity trade to artificially inflate Enron’s yearendearnings by approximately $50 million. E-mails between Merrill Lynch employeesacknowledge that “we were clearly helping them make earnings for the quarter and year (which hada great value in their stock price, not to mention personal compensation).” MLBE 0370956 (quotedin Exam. III, App. I at 42).551. The 1999 electricity trade was a sham transaction. Not only that, Merrill Lynch knewthe Insiders would unwind the deal before the first option was exercised. The Insiders did unwindthe deal in May of 2000 and the transactions were terminated without a single trade having occurred.When the Insiders did that, Merrill Lynch’s Tilney conceded that “[t]his is not that great a surprise.”Id. at 44. Nevertheless, when first approached about unwinding the 1999 electricity trade, MerrillLynch insisted on being paid the entire $17 million fee because Merrill Lynch had helped theInsiders create earnings for 1999 that boosted Enron’s stock price, as well as compensated Enronexecutives, including some of the Insiders. Merrill Lynch eventually relented and instead agreedto accept an $8.5 million fee. Id. at 39.(4) LJM2.552. In addition to its knowing participation in manipulation of Enron’s financialstatements, Merrill Lynch also facilitated the Insiders’ scheme by playing a critical role in LJM2.At Fastow’s urging, Merrill Lynch served as the exclusive financial advisor to and placement agentfor LJM2, the private investment partnership Fastow, Glisan and Kopper formed. Merrill Lynch604041v1/007457-183-