Enron Corp. - University of California | Office of The President

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devised, implemented and financed (or raised financing for) the following fraudulent deceptive devises for the purposes of falsifying Enron's financial disclosures: Yosemite I-IV (including prepaid swap transactions with CitiGroup's Cayman Island entity known as Delta Energy Corp. and the offering of synthetic Enron bond offerings including the Yosemite Credit Linked Obligations or Credit Linked Notes); prepaid swap transactions, including those known as Roosevelt and Truman; Condor/Whitewing; and the series of transactions known as Fishtail, Sundance, and Bacchus (collectively amounting a sham asset sale of pulp and paper trading business assets at inflated values to put false income and cash flow on Enron's financial statements). (d) Salomon Brothers International Limited aka Schroder Salomon Smith Barney or Salomon Smith Barney International ("Salomon International") – under the control of CitiGroup, Inc. – acted (as is detailed further in the section of this Complaint entitled "Involvement of CitiGroup") to further the defendants' fraudulent scheme by underwriting certain Enron and Enron affiliated entity securities, including: the Yosemite Securities Co. Ltd. 2/15/00 8.75% Series 2000-A Linked Enron Obligations due 07; the Enron Euro Credit Linked Notes Trust 5/17/01 6.5% Enron Euro Credit Linked Notes due 06; and the Enron Sterling Credit Linked Notes Trust 5/17/01 7.25% Enron Sterling Credit Linked Notes due 06. 102. (a) Defendant Credit Suisse First Boston (USA), Inc., formerly known as Donaldson Lufkin & Jenrette, Inc., is a large integrated financial services institution that directly and through known and unknown predecessors, subsidiaries, divisions and/or affiliates acting as the agent of and controlled by Credit Suisse First Boston (USA), Inc., such as, but not limited to, Credit Suisse First Boston Corp., Donaldson, Lufkin & Jenrette Securities Corp., and Pershing LLC (collectively, "CS First Boston") provides commercial and investment banking services, commercial loans to corporate entities, and advisory services regarding the structuring of financial transactions, - 120 -
including engaging in or helping to structure derivatives and hedging financial transactions, acting as underwriter in the sale of corporate securities to the public and providing investment analysis and opinions on public companies, including its clients, via reports issued by securities analysts. CS First Boston engaged and participated in the scheme to defraud purchasers of Enron securities and Enron's course of business which operated as a fraud and deceit on purchasers of Enron's securities by rendering all of the above services to Enron as described in greater detail in the section of this Complaint entitled "Involvement of CS First Boston." In addition to Credit Suisse First Boston (USA), Inc., the following subsidiaries, divisions and/or affiliates, acting at the direction of Credit Suisse First Boston (USA), Inc., are specifically named as defendants: (b) Pershing LLC, formerly known as Donaldson Lufkin & Jenrette Securities Corp. and a wholly owned subsidiary of Credit Suisse First Boston (USA), Inc., acted – under the control of Credit Suisse First Boston (USA), Inc. and/or its predecessor entity Donaldson Lufkin & Jenrette, Inc. – to further the defendants' fraudulent scheme by underwriting Enron and Enron affiliated entity offerings, including: the Osprey Trust, Osprey I, Inc. 9/28/00 7.797% and 6.375% Senior Secured Notes due 03; the Osprey Trust, Osprey I, Inc. 9/23/99 8.31% Senior Secured Notes due 03; and Enron's 2/11/99 common stock offering. (c) Credit Suisse First Boston Corp., acted – under the control of Credit Suisse First Boston (USA), Inc. – to further defendants' fraudulent scheme by, among other things, issuing false and misleading analyst reports throughout the Class Period, structuring fraudulent transactions designed to falsify Enron's reported financial disclosures and by underwriting Enron and Enron affiliated entity offerings, including: the Osprey Trust, Osprey I, Inc. 9/28/00 7.797% and 6.375% Senior Secured Notes due 03; the Marlin Water Trust II, Marlin Water Corp. II 7/12/01 6.31% and - 121 -
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KEN L. HARRISON, STEVEN J. KEAN, RE
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TABLE OF CONTENTS - i - Page PREAMB
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... hiding losses/SEC violations)..
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2 Certain defendants named herein,
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to do so would incriminate them. Wh
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y Enron to keep high-debt assets li
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in JEDI, making it possible for tra
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continued to accelerate, ultimately
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financial condition and investment
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it controlled, and was doing phony
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Bobcat Raptor-IV Marlin Trust I Mar
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to be utilized to engage in transac
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facilitate and finance LJM2's illic
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unnoticed: 30. This blatant self-de
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LJM1 and LJM2 in transactions struc
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and more of the stock issuance "tri
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dollar contracts which allowed it t
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41. Just eight months after announc
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Dollars Per Share 30 25 20 15 10 5
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Enron's financial condition to make
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Enron's finances, but very likely w
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Merrill Lynch CitiGroup Banks Named
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CitiGroup Barclays Banks Named As D
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The employee adds that anyone who q
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of the SPEs Enron did business with
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destroying millions of pages of doc
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- Statement of Financial Accounting
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eporting earnings from the 3rdQ 00
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disclosures were crafted and approv
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falsify its financial results and t
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72. On 2/26/02, Dow Jones News Serv
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A. Lead Plaintiff PARTIES 79. Court
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(g) Plaintiff Amalgamated Bank, as
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D. Defendants and Related Parties (
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Enron Corp. Defendant J. Skilling's
Page 74 and 75: Dollars per Share Enron Corp. Defen
Page 76 and 77: Enron Corp. Defendant S. Horton's Q
Page 86 and 87: Ms. Olson [told] employees in Decem
Page 100 and 101: (dd) Defendants John Mendelsohn ("M
Page 102 and 103: (ii) The Marlin Water and Atlantic
Page 104 and 105: public information, pocketing over
Page 106 and 107: Dollars per Share $100 $80 $60 $40
Page 108 and 109: As of 3/98 Executive Committee Comp
Page 110 and 111: Steven J. KeanSenior Vice President
Page 112 and 113: Kevin P. Hannon Chief Operating Off
Page 114 and 115: shortly after their issuance and/or
Page 116 and 117: (b) Defendant Thomas H. Bauer ("Bau
Page 118 and 119: (l) Defendant Richard R. Petersen (
Page 120 and 121: (4) Investment Banks 99.1 Each of t
Page 122 and 123: Notes due 7/15/06 and 6.95% Notes d
Page 126 and 127: 6.19% Senior Secured Notes due 03;
Page 128 and 129: of and controlled by Bank of Americ
Page 130 and 131: fraudulent scheme by disguising deb
Page 132 and 133: fraudulent scheme by repeatedly iss
Page 134 and 135: BACKGROUND TO THE CLASS PERIOD 109.
Page 136 and 137: "Enron's water subsidiary initially
Page 138 and 139: • Enron just had a great, great q
Page 140 and 141: loans to the SPEs and Barclays had
Page 142 and 143: without any adequate feasibility st
Page 144 and 145: Registration Statement was signed b
Page 146 and 147: • Wholesale Energy Operations and
Page 148 and 149: ... Together, our business units re
Page 150 and 151: 10-K report. The Form 10-K containe
Page 152 and 153: performance and all of the indicati
Page 154 and 155: 150. On 5/7/99, Lehman Brothers iss
Page 156 and 157: Communications Is Running Faster an
Page 158 and 159: costs. For example, Enron picked th
Page 160 and 161: (k) Under Mark-Jusbasche, Enron Int
Page 162 and 163: (p) As a result of the foregoing, t
Page 164 and 165: 160. On 7/14/99, The Houston Chroni
Page 166 and 167: In discussing the most recent decli
Page 168 and 169: • Enron expects this sector ... t
Page 170 and 171: 178. On 10/12/99, Bloomberg reporte
Page 172 and 173: three times the $850 million contra
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Enron Corp. had a 12.5% increase in
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months there was speculation of a c
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* * * ECI has two new and related b
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198. On 1/18/00, CS First Boston is
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• This is a huge step forward for
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208. On 1/21/00, Merrill Lynch issu
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The company hopes to capture 10 per
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of mark-to-market accounting by ado
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(ii) EES entered into demand-side-m
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(j) To inflate the purported revenu
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(q) As a result of the foregoing, t
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Andersen: 218. With respect to EES,
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Fastow also appeared at the Enron A
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227. On 4/12/00, CitiGroup issued a
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communications segment. The wholesa
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TRADING GROWING FASTER THAN EXPECTE
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Enron and Blockbuster plan to intro
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• The bandwidth trading component
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Broadband Services In our view, Enr
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• ENE reported 2Q00 EPS of $0.34,
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• ... Enron Broadband Services ..
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• In terms of content, Enron Broa
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It also had over 10 additional tran
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• Impressive wholesale energy res
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271. As a result of defendants' fal
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let alone continue to engage in sim
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Retail Energy Services: ... Enron E
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Well, we were up, 1998, we were up,
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• Growth Targets Lifted .... * *
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acceleration of growth and creation
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Our talented people ... financial s
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stock, selling 1.1 million shares i
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evenue. Even though Enron could not
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ecognized a multi-million dollar pr
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exchange for orders by Enron in 99
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streaming content because the EIN a
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not have the legal right to electro
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illions of dollars while concealing
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4 years .... We are projecting mini
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and Content Delivery which remain s
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• a 281 percent increase in reven
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[W]e ... said to investors, as long
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growth in '98, 18% growth in '99 an
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conference calls and in follow-up c
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stated: 332. On 7/12/01, Skilling a
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337. On 7/25/01, Bloomberg News rep
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financial condition and liquidity -
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equipment, a significant portion of
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million up-front cash just to sign
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(i) Enron entered into dark-fiber s
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intermediation. Even worse, Enron g
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sense, to "just drink more Enron Ko
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Dear Mr. Lay, * * * Skilling's abru
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. Cliff Baxter complained mightily
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is up 40%, earnings per share up ab
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CEO Jeff Skilling Resigns; A Negati
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356. On 8/28/01, Lay was interviewe
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... But all of the problems I have
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362. On 10/9/01, Merrill Lynch issu
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- $180 million associated with the
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income, to about $400 million and a
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Enron Corporation (BUY) Third Quart
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of things - the LJM transactions we
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Enron Continues As Market-Maker of
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failing to eliminate additional hun
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391. Rubin's and Harrison's effort
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DEFENDANTS' SCHEME AND FRAUDULENT C
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Enron Defendants had permitted Enro
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Derrick 230,660 $ 12,563,928 John D
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Dollars per Share $100 $80 $60 $40
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executives will be generally hesita
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and 99.9%. This level of certainty
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ENRON'S FALSE FINANCIAL STATEMENTS
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$12,000,000,000 $10,000,000,000 $8,
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50.00% 45.00% 40.00% 35.00% 30.00%
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8 Debt to equity is calculated usin
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executed in accordance with managem
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SPEs, under any accounting machinat
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439. However, even after employing
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(a) Enron Guarantee Fee 443. Enron
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(2) LJM Partnerships 448. Enron als
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comparable securities in the market
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CS First Boston, Merrill Lynch, JP
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hedged through traditional transact
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gathering system in the Gulf of Mex
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(b) Raptors (i) Raptor I 477. The f
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only entered to avoid recognition o
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million, giving LJM2 its specified
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y a total of $1 billion in the unau
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Skilling, knew of the decline, by w
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(2) the transferred assets were not
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S-K required the disclosure of the
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Even though a misstatement of an in
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522. In order for Enron to accrue r
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engaged in swapping capacity of thi
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earnings and separately disclosed i
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practice was common in all trading
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What made it all work, Dickson said
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14 Securities that are bought and h
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(4) Quaker Oats 557. Under one of i
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supplied by Enron under the terms o
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(2) Prepaid Swaps with CitiGroup an
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In essence, his report concluded, E
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Project Name Description Contract V
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earnings below expectations. By 97,
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content services business. In fact,
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593. Enron also failed to disclose
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Enron arrived in India in the early
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holdings for $700 million. It is no
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investment and credit decisions ref
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Date of Offering Effective Date of
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created in Enron, the Offering Docu
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621. The true effect of "early sett
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FINANCIAL RISK MANAGEMENT * * * Enr
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Vinson & Elkins also knew because t
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could connect. Enron's BOS was to b
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not even make a broadband connectio
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05/17/01 Enron Euro Credit Linked N
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usiness is the management of certai
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Yosemite Securities Trust I Offerin
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Communications Enron is developing
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(a) Annual Report on Form 10-K for
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ENRON HISTORICAL CONSOLIDATED FINAN
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Business of Enron DESCRIPTION OF EN
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Income Statement Data: SELECTED HIS
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• the transportation of natural g
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Balance Sheet Data (at end of perio
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wholesale customers to view Enron's
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ENRON HISTORICAL CONSOLIDATED FINAN
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Marlin Water Trust II/Marlin Water
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Retail Energy Services Enron Energy
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Cumulative effect of accounting cha
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A. General INVOLVEMENT OF THE BANKS
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manage such conflicts of interests.
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privately held entity created by En
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caused its stock to plunge and impa
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its financial results. Thus, the ba
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something each of the banks named a
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7/01 Marlin Water Trust II, Marlin
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default puts" on Enron's publicly t
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were fraudulent and used to conceal
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667. These phony commodity transact
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anging falsification of its financi
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DATE SECURITY 11/93 8 million share
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8/01 $3 billion Enron credit facili
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a year in interest payments, and sy
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participation in the scheme to defr
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illicit partnerships or SPEs, and h
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698. In 6/99, CS First Boston acted
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703. In addition to the foregoing,
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These transactions included Marlin,
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of the firm, invested $22.5 million
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the CIBC legal entity, as its knowl
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sales where CIBC was one of the und
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not a true investor and was not at
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"It was nothing but a pilot project
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Tilney's wife was a Managing Direct
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otherwise to outside investors'" an
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an effort spearheaded by Schuyler M
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Barry S. Friedberg, $500,000 Chairm
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Flash Report" for 12/23/99 identifi
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• Currently pitching to become En
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Concurrently, Enron advised Merrill
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742.19 Internally, Merrill Lynch co
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if Enron defaulted within a given t
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748. By the beginning of the Class
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- something that Barclays was in a
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length transactions with to generat
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Brothers legal entity, as its knowl
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5/99 $500 million 7-3/8% Enron note
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financial information as Enron's le
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instance: 5/00 $500 million 8.375%
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and condition of Enron's business o
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eturn for Deutsche Bank's participa
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DATE TRANSACTION 7/98 $252 million
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797. Deutsche Bank also actively en
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would pay it a large fee for the ea
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797.8 The Washington Post further f
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797.12 Bankers Trust's role in Proj
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797.17 In the words of the Joint Co
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797.25 Project Tomas was structured
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emaining from Bankers Trust to Enro
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INVOLVEMENT OF VINSON & ELKINS 800.
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accommodated Enron's desire for one
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The document ... sharply criticizes
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to "close," i.e., take place, and t
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806. However, Enron could not find
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810. During 12/97, Vinson & Elkins
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day-to-day activities would be mana
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equired to pay Enron on the "hedge"
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these SPEs, Enron would have to tak
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Vinson & Elkins Concealed the Phony
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In March 2001, Enron acquired the l
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ecause it participated in the negot
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839. The related-party disclosures
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846. The "disclosures" above are fa
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The Attempted Coverup 850. In mid-8
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3. There is a veil of secrecy aroun
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854. The result of this letter - la
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standpoint. In this regard, AA cons
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A. General INVOLVEMENT OF ARTHUR AN
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Andersen also consented to the use
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905. Andersen's reports were false
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investors that would hold assets an
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915. Andersen also performed certai
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ing to light documents illustrating
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he was aware of many of the company
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Andersen employees destroyed incrim
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departments, knew about the excessi
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a blind eye to the numerous red fla
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• How Enron could, with its own c
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Tallying all expected profits immed
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c. Determine whether the transactio
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keep the Chewco deal off the books.
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improper accounting was corrected).
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in order for the financial statemen
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959. As detailed herein, Enron's di
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connection with an SEC investigatio
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eached by David Duncan and other ac
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. Fails to correct an entity's fina
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(j) The fourth standard of reportin
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Professional Standards Group has fi
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headquarters are located at 33 West
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STATUTORY SAFE HARBOR 985. The stat
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988. Plaintiffs' claims are typical
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- 628 - Michael M. Lowther* Benjami
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1000. This Claim is brought by the
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Type of Offering Enron Corp. 7.875%
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day of the offering. day of the off
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liable as detailed herein. Defendan
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08/17/00 Enron Credit Linked Notes
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subdivisions thereof and/or State P
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JP Morgan and Lehman Brothers had a
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1016.26 This Claim is brought pursu
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Plaintiffs hereby demand a trial by
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SHAPIRO HABER & URMY LLP THOMAS G.
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