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

(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 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
loans to the SPEs and Barclays had provided a phony equity portion, to avoid improper
consolidation.
(e) The results of Enron's WEOS business – its largest business unit – were
manipulated and falsified to boost its reported profitability in various ways. First, by phony or
illusory hedging transactions with entities that were not independent of Enron. Second, by the abuse
of mark-to-market accounting by adopting unreasonable contract valuations and economic
assumptions when contracts were initially entered into. And third, by arbitrarily adjusting those
values upward at quarter's end to boost the wholesale operation's profits for that period – a practice
known inside Enron as "moving the curve." For instance, prospective international deals were
prepared by internal Enron "developers," who created the deal structure. The developers then
presented the materials to Enron's Risk Analysis & Control ("RAC") department with an estimated
net present value ("NPV"), calculated over 20 years, and Enron's return on investment ("ROI") over
the life of the deal. The calculation of NPV and ROI required the use of numerous assumptions –
such as foreign-exchange rates, revenue growth, inflation rates, cost escalation, economic growth
and demand. Enron manipulated the assumptions to inflate projected revenues and deflate projected
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