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

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• Enron just had a great, great quarter in this segment. Over all, the third quarter was a very strong quarter for Enron. Strong earnings, very clean earnings for the quarter and Enron was feeling really good about how the year is coming and how 99 is setting up. 120. On 10/14/98, CIBC issued a report on Enron. The report forecast 99 and 00 EPS of $1.15 and $1.35 for Enron and stated: Enron reported third quarter net income of $[0.235] per share ... better than our estimate of $[0.22]. [G]rowth has been spearheaded by sharp gains in Wholesale Energy Operations and Services .... * * * Enron Energy Services provides comprehensive energy solutions to U.S. commercial and light industrial end-users. Future retail contracts growing; future undiscounted revenues should exceed $3 billion by year-end. Management continues to build its retail business under Enron Energy Services.... The division is expected to turn profitable during the second half of 1999. During the third quarter the company signed contracts representing $850 million of total future energy expenditures, taking the total under contract to $2.3 billion. EES's backlog of retail contracts the division is now pursuing approximates $12 billion with average contract life of 5 years. Contracts under negotiation ... outsourcing income which should carry higher margins. - 134 -
CLASS PERIOD EVENTS AND FALSE STATEMENTS 121. On 10/19/98 (the beginning of the Federal Class Period), the statements pleaded in 109-120 were alive, impacting and inflating the market price of Enron's publicly traded securities. Each of the statements made between 7/14/98-10/14/98 were false or misleading when issued. The true but concealed facts were: (a) Enron's financial statements and results issued during this period were false and misleading as they inflated Enron's revenues and earnings to conceal billions of dollars of debt that should have been shown on Enron's balance sheet, as described in 418-611. (b) Contrary to the representations that Enron's transactions with its related parties were fair to Enron and on terms representative of those that could be obtained in arm's-length transactions with independent third parties, in fact, the transactions with Enron's related parties were grossly unfair to Enron and set up in a manner to permit Enron to pay off key Enron insiders, including Fastow, for their participation in the scheme, which included arranging the illicit and illegal financial transactions with those related parties on terms that no independent third party would ever have agreed to, as detailed herein. (c) Enron's financial condition, including its liquidity and credit standing, was not nearly as strong as represented, as Enron was concealing billions of dollars of debt that should have been reported on its balance sheet – and which would have very negatively affected its credit rating, financial condition and liquidity – by improperly transferring that debt to the balance sheets of various non-qualifying SPEs and partnerships it secretly controlled, as detailed herein. (d) Enron generated hundreds of millions of dollars of profits and transferred billions of dollars of debt off its balance sheet by entering into non-arm's-length transactions with SPEs and partnerships Enron controlled, including Chewco/JEDI, for which Enron had guaranteed - 135 -
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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
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Dollars per Share Enron Corp. Defen
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Enron Corp. Defendant S. Horton's Q
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Ms. Olson [told] employees in Decem
Page 88 and 89: Dollars per Share Enron Corp. Defen
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 124 and 125: devised, implemented and financed (
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 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
Page 174 and 175: Enron Corp. had a 12.5% increase in
Page 176 and 177: months there was speculation of a c
Page 178 and 179: * * * ECI has two new and related b
Page 180 and 181: 198. On 1/18/00, CS First Boston is
Page 182 and 183: • This is a huge step forward for
Page 184 and 185: 208. On 1/21/00, Merrill Lynch issu
Page 186 and 187: 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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