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

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three times the $850 million contracted in the third quarter a year ago. In a significant development during the quarter, Enron Energy Services entered into a contract with Owens Corning, representing the largest contract signed to date involving a major industrial company. The contract calls for Owens Corning to buy $1.1 billion worth of electricity and energy-management services for 20 domestic manufacturing plants from Enron over the next ten years. With the addition of the Owens Corning contract and others expected to follow shortly, Enron is confident that it will meet or beat its target of $8 billion in contracts for 1999, which will be more than double the value of contracts signed during 1998.... Given this tremendous growth, we have a high degree of confidence that the Retail Energy Services business will generate positive cash flow and earnings by 4Q99. 183. On 10/13/99, CIBC issued a report on Enron. It rated Enron a "Buy" and forecast 00 and 01 EPS of $1.35 and $1.53 for Enron. It also stated: [M]anagement aggressively targets higher growth businesses.... [T]o concentrate on the wholesale and retail delivery of energy and communications products and services. * * * Retail Energy Services.... During Q3-99 EES entered into contracts representing $2.5 billion of customers' future expenditures for energy services, or three times the $850 million contracted in Q3-98. The Q3-99 results include the largest contract signed to date – a more than $1 billion ten-year outsourcing agreement with Owens Corning .... Importantly, EES is expected to meet or exceed its target of signing $8 billion of contracts in 1999, representing more than double the value of contracts signed during 1998. EES business plan is firmly on track to make a positive contribution to Enron's earnings during the fourth quarter of 1999. 184. On 10/13/99, Deutsche Bank issued a report on Enron. It rated Enron a "Buy" and forecast 00 EPS of $1.35 and a 14% three-year EPS growth rate for Enron. It also stated: We reiterate our BUY recommendation on ENE shares. * * * ... This morning, Enron management held one of their traditional quarterly meetings in New York. We were impressed, as usual, by the Enron's growth prospects in domestic energy markets, international ... markets, and the fledgling communications segment. The wholesale segment continues to be a powerhouse domestically.... The growth potential for Enron is obvious .... * * * - 168 -
Jeff Skilling was enthusiastic about the Indian market. Despite political chest thumping in India, he suggested that Enron is in very solid political stead in India. Retail Energy Services appears to be making significant progress towards profitability. Management expects to sign almost $2 billion worth of contracts shortly to push the annual contract origination total to over $8 billion as promised.... Management reiterated its expectation that strong growth in this developing segment will allow better than break-even cash flow and EPS results in 4Q99, perhaps years ahead of most competitors. * * * In our view, Enron's 3Q results clearly demonstrate its best-in-class ... power marketing and energy services skills. We remain impressed with Enron's continued ability to produce strong earnings growth in its core wholesale energy businesses. While Enron's quarterly results were slightly below the 15% long-term growth rate estimate we have established for Enron, we believe long-term annual earnings will have less variance than quarterly results. We fully anticipate that the company will be capable of producing EPS growth in excess of 15% .... 185. On 10/15/99, Bank America issued a report on Enron. It rated Enron a "Buy" and forecast 00 EPS of $1.38 and a 15% secular EPS growth rate for Enron. It also stated: ENE: EES Announces $1.5 Billion Contract with REIT, Total Backlog in '99 Now $7.4 B (EES) ... announced a $1.5 billion contract with Simon Brand Ventures to manage the energy needs of all of Simon's real estate properties over a ten year period.... The Simon contract brings EES' total announced backlog in 1999 to $7.4 billion. EES signed $3.8 billion of contracts in 1998 and $1.2 billion in 1997. * * * EES has now announced $3 billion of long term outsourcing contracts within the last few weeks. We believe the momentum and quality of contracts fully validate Enron's strategy and dominant presence in this field. EES is expected to contribute at least $50 million of ... (IBIT) in FY00 .... 186. On 10/20/99 CitiGroup issued a report on Enron. It rated Enron a "Buy" and forecast 00 EPS of $1.40 and also stated: - 169 -
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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
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(dd) Defendants John Mendelsohn ("M
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(ii) The Marlin Water and Atlantic
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public information, pocketing over
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Dollars per Share $100 $80 $60 $40
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As of 3/98 Executive Committee Comp
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Steven J. KeanSenior Vice President
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Kevin P. Hannon Chief Operating Off
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shortly after their issuance and/or
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(b) Defendant Thomas H. Bauer ("Bau
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(l) Defendant Richard R. Petersen (
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(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 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 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
Page 188 and 189: of mark-to-market accounting by ado
Page 190 and 191: (ii) EES entered into demand-side-m
Page 192 and 193: (j) To inflate the purported revenu
Page 194 and 195: (q) As a result of the foregoing, t
Page 196 and 197: Andersen: 218. With respect to EES,
Page 198 and 199: Fastow also appeared at the Enron A
Page 200 and 201: 227. On 4/12/00, CitiGroup issued a
Page 202 and 203: communications segment. The wholesa
Page 204 and 205: TRADING GROWING FASTER THAN EXPECTE
Page 206 and 207: Enron and Blockbuster plan to intro
Page 208 and 209: 244. On 7/19/00, CitiGroup issued a
Page 210 and 211: • The bandwidth trading component
Page 212 and 213: Broadband Services In our view, Enr
Page 214 and 215: • ENE reported 2Q00 EPS of $0.34,
Page 216 and 217: • ... Enron Broadband Services ..
Page 218 and 219: • In terms of content, Enron Broa
Page 220 and 221: 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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308. On 3/22/01, CitiGroup issued a
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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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326. On 5/18/01, CitiGroup issued a
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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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