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235. From the beginning, Fastow knew LJM1 was destined to be profitable. Therefore,as a reward for previous loyalty, Fastow invited two Bank Defendants to purchase equity in LJM1:CSFB and RBS. On June 30, 1999, through subsidiaries, CSFB and RBS each contributed$7.5 million. LJM Partners, LLC, the general partner of LJM1 (which Fastow also controlled),contributed $1.0 million.236. Although LJM1’s whole purpose was to hedge Enron’s risk in its Rhythms stock,LJM1 did not accomplish that, through the Rhythms Hedge or otherwise. As described inparagraphs 561 through 566 below, despite a number of complicated transfers, Fastow failed totransfer any of Enron’s true economic risk to any third party with assets other than assets Enronprovided. As a result, the Rhythms hedging transaction was a non-economic hedge. Exam. IV,App. E at 36.237. In contrast, LJM1 proved very profitable for Fastow, CSFB, RBS, and a select groupof others with which Fastow found favor. For example, despite the Enron Conditions, Fastowdevised a way to personally profit from the Enron stock in LJM1 and LJM1 Swap Sub. In theprocess, Fastow helped CSFB and RBS hedge their portions of the Enron shares in LJM1 Swap Sub– despite restrictions on the Enron stock that prohibited them from doing so.238. In November 1999, Fastow and the LJM1 limited partners determined to recapitalizeLJM1 and, in the process, retire debt LJM1 owed to Enron (from Notes Enron received in exchangefor the stock transferred to LJM1) and to CSFB (from a bridge loan CSFB made to LJM1 to investin Cuiaba and Osprey certificates). At the end of November, Fastow had LJM1 distribute into twoescrow accounts – one for each limited partner – LJM1’s 1.8 million shares of Enron stock. Inreturn, CSFB and RBS agreed to make equal additional capital contributions of $45.1 million toLJM1, an amount that permitted LJM1 to pay off both the Enron Notes and the CSFB bridge loan.604041v1/007457-67-