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

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198. On 1/18/00, CS First Boston issued a report on Enron. It rated Enron a "Buy" and forecast 00 EPS of $1.35 and a 15%five-year growth rate for Enron. It also stated: Retail (EES) turned earnings positive with a profit of $7 million for the quarter. We expect 2000 to be the year that "EDSing" fully explodes .... ... Substantial potential exists for upward earnings revisions as the knowledge- and information-based Wholesale and Retail businesses have begun to fire on all cylinders. We expect earnings growth of 20% or better in Wholesale and growth in the Retail business with earnings increasing from a $68 million loss in FY99 to a $50-100 million profit in 2000. 199. On 1/18/00, 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: Enron reported Q499 EPS of $0.31 ... up from $0.24 a year ago .... Full year earnings reached $1.18, up from $1.10 a year ago. Earnings advanced 29% for the quarter and 18% for the full year. We continue to rate ENE shares a BUY.... Improved results were driven by gains at all segments.... Enron Energy Services, the company's retail services business, turned profitable as expected. 200. On 1/18/00, Bank America issued a report on Enron. It rated Enron a "Strong Buy" and forecast 00 and 01 EPS of $1.35 and $1.55 and a 15% secular growth rate for Enron. It also stated: • Enron Corp. reported fourth quarter EPS of $0.31, ahead of our $0.27 estimate and an increase of 29% year over year. For the full year 1999, ENE reported $1.18 ... an increase of 18% versus the prior year. Fourth quarter EPS was driven by continued growth in the Wholesale Energy Operations and Services (WEOS) business, which increased operating income by 31% .... Enron Energy Services (EES) also reported its first profitable quarter, generating $7 million in operating income. We continue to rate ENE Strong Buy .... * * * • As expected, Enron Energy Services reported a profit in the fourth quarter.... We continue to expect EES will contribute meaningfully to EPS in 2000. - 176 -
• We recently raised our 12-month price target for ENE to $75 from $45 and our rating to Strong Buy from Buy. 201. On 1/18/00, Merrill Lynch issued a report on Enron. It rated Enron a "Buy" and forecast 00 EPS of $1.39 and an 18% five-year EPS growth rate for Enron. It also stated: • [W]e are maintaining our Accumulate/Buy opinions, given its leading position as a merchant energy conglomerate and the potential of its telecommunications business. * * * • ENE posted another solid quarter and year. EPS were up 29% for 4Q'99 from $0.24 to $0.31. Full year results were up 17%, from $1.01/share to $1.18/share. • Strong IBIT growth in the wholesale energy services division again fueled the quarter and the year. In addition, ENE's rapidly growing Retail Energy Services business continues to improve and for the first time posted positive IBIT in 4Q'99. 202. On 1/19/00, The Wall Street Journal reported: The company said it booked a profit of $7 million on its retail-energy business for the quarter, compared with a loss of $26 million a year earlier. Enron President Jeffrey Skilling said fixed costs of $170 million a year were hard to overcome during the past three years, but "we've crossed that line now and this business will be a big factor for us in the future." Mr. Skilling said Enron marketers brought in business contracts valued at $8.5 billion during 1999 ... generating significant income for the company. Mr. Skilling expects profit from retail energy services to rise "significantly" from a projected $50 million for 2000.... "As we look to 2000, we see momentum building in every one of our businesses," Mr. Skilling said. 203. On 1/20/00, Bank America issued a report on Enron. It rated Enron a "Strong Buy" and forecast 00 and 01 EPS of $1.35 and $1.55 and a 15% secular EPS growth rate for Enron. It also stated: • Enron Corp. announced at its analyst conference today that it has entered into a joint venture with Sun Microsystems to develop further Enron's Intelligent Network .... - 177 -
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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
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Notes due 7/15/06 and 6.95% Notes d
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devised, implemented and financed (
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6.19% Senior Secured Notes due 03;
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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
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 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
Page 222 and 223: • Impressive wholesale energy res
Page 224 and 225: 271. As a result of defendants' fal
Page 226 and 227: let alone continue to engage in sim
Page 228 and 229: 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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