Footnote 8

E-mail from Richard Lydecker, Enron, to Jeff Donahue, Enron, Sept. 15, 2000 at 1 (emphasisadded).180. For some Insiders, the ultimate purpose of these partnerships was improper. Theyused them as vehicles for siphoning money from Enron. Not just those Insiders profited, however.Bank Defendants did too. The Insiders permitted and/or encouraged the Bank Defendants to investin the partnerships and reap significant returns on their investments as reward for facilitating“problematic” SPE transactions and remaining quiet about the impropriety of Enron’s financialreporting.(2) The Enron prepay transactions were loans improperly disguisedas commodity trades.181. From 1992 through 2001, Enron engaged in structured transactions called “prepaytransactions” (the “Enron prepay transactions”). Ostensibly, the Enron prepay transactions werecommodity trades – that is, trades in which Enron agreed to deliver a specific amount of acommodity (such as gas or oil) in the future, usually over the course of several years, in exchangefor a single, up-front payment (the purchase price) from the purchaser.182. Enron did not invent the concept of prepay transactions. As the SEC recentlyexplained in a complaint filed against JP Morgan Chase, in a typical prepay transaction there are twoparties andthe seller bets that the market price of the subject commodity would be lower at thetime of delivery than at the time the contract is made. The purchaser bets theopposite way: that the market price of the commodity at the time of delivery willexceed the price it paid at the time of contracting. In a typical prepay transaction,therefore, each side assumes commodity price risk.SEC v. J.P. Morgan Chase & Co., Complaint at 12 (S.D. Tex. 2003) [hereinafter “SEC ChaseComplaint]. But, beginning in at least 1997, the Enron prepay transactions failed to qualify astypical prepay transactions, because each side did not assume commodity price risk. More604041v1/007457-48-