Footnote 8

The fact is that a two bit LLC called Martin [the original name for LJM1], owned bya couple of Enron employees, will all of a sudden be gifted $220m of Enron stock.It could never bother about the borrowing base, sell the stock in the market, pack up[its] bag and disappear off to Rio. If you owned it, wouldn’t you? Now I’mbeginning to understand why these guys are so keen to get in on it. . . .What am I missing???????There needs to be consideration given to the Enron group.RBS 4014174 (quoted in Exam. IV, App. E at 38) (emphasis in original).640. RBS was so worried about Fastow’s obvious conflict of interest that it expressedinternal concern about the “reputational risk” the bank was taking by participating in LJM1. See,e.g., RBS 3030461 (quoted in Exam. IV, App. E at 39), RBS 4014620 (quoted in Exam. IV, App. Eat 40 n.141). An internal RBS document candidly acknowledged: “[I]t is not too difficult toconstruct some form of legal action by Enron shareholders (however spurious) claiming that theyhave been short-changed, that Andy Fastow has ‘cherry picked’ assets etc. and, in isolation, theposition does not look good.” RBS 3030461 (quoted in Exam. IV, App. E at 40).641. Despite RBS’ initial assertions that it would not proceed with the transaction withoutreviewing a fairness opinion being prepared by PricewaterhouseCoopers (“PWC”), RBS insteadopted to accept Kopper’s verbal assurances that the opinion would bless the transaction as fair toEnron. See Exam. IV, App. E at 41-42.(a)LJM1 and the Rhythms Hedging transaction642. RBS knew LJM1 was initially formed to hedge the risk on extremely volatileRhythms stock held by Enron. See RBS 4014615 (quoted in Exam. IV, App. E at 34). The RhythmsHedging transaction was structured as follows: Enron gave LJM1 6,755,394 Enron common shares.At the time of this transaction, the shares ostensibly had an unrestricted fair market value of$276 million. However, Enron transferred the shares subject to liquidity restrictions: a four-yearrestriction on resale and a one-year (later changed to two-year) restriction on hedging. Because of604041v1/007457-220-