Footnote 8

(1) In late 1997, Fastow and Kopper formed Chewco.225. Chewco was the first of the three independent investment vehicles. In the early1990's, Enron entered into a limited partnership with California Public Employees’ RetirementSystem (“CalPERs”). The partnership was Joint Energy Development Incorporated (“JEDI”), andCalPERs was the sole limited partner. In late 1997, CalPERs decided to divest itself of its interestin JEDI. Although Enron could have purchased CalPERs’ interest directly, doing so would havemeant consolidating JEDI on Enron’s financial statements. At the time, consolidation wouldeffectively have wiped out 40% of Enron’s reported 1997 profits and added approximately$700 million in debt to Enron’s balance sheet. To avoid that, Fastow and Kopper conceived of, andcreated, Chewco – and made it the replacement investor.226. A problem with Chewco in that role, however, was that Chewco did not satisfy the3% equity rule. Barclays structured and financed the equity piece of Chewco. However, a sufficientpercent of equity was not at risk. As discussed in the Barclays’ section below, Barclays’ equityinvestment was secured by reserve accounts the Insiders established with Enron’s money. Virtuallyall of Chewco’s equity therefore was traceable back to Enron. Nonetheless, by treating Chewco asan unconsolidated entity, Fastow had Enron report JEDI profits and not report JEDI debt on Enron’sfinancial statements – which meant Enron, in turn, announced better-than-expected 1997performance. Fastow and Kopper paid themselves handsomely from Chewco for this illusion.(2) In 1999, Fastow and Kopper expanded their scheme by creatingthe LJM partnerships.227. Emboldened by the success of Chewco – as well as by the money he made fromit – Fastow conceived and created the second and third “independent” investment vehicles: LJM1and LJM2. LJM1 (technically, LJM Cayman, L.P.) was a Cayman Islands limited partnership.604041v1/007457-64-