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

Bobcat
Raptor-IV
Marlin Trust I
Marlin Capital II
D. The Partnerships and SPEs
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$83
$68
$34
21. To manipulate and thus falsify Enron's financial condition and inflate its reported
results, Enron, Andersen, Vinson & Elkins, and several of Enron's banks engaged in a series of
purported "partnership" and "related party" transactions, including those described below. Many of
the entities Enron used to falsify its financial results were known as SPEs. A public company that
conducts business with an SPE may treat that SPE as if it were an independent entity only if it does
not control the SPE. At a bare minimum, two conditions must be met: (i) an owner independent of
the company must make an equity investment of at least 3% of the SPE's assets, and that 3% must
remain at risk throughout the transaction; and (ii) the independent owner must exercise control
of the SPE.
22. Prior to 97, Enron was a partner in JEDI. Because the 3% outside equity and
independent control conditions were met in JEDI, Enron was not required to consolidate JEDI into
its financial statements, and Enron thus recorded its share of profits from JEDI on its income
statement but did not show JEDI's debt on its balance sheet. However, in late 97, Enron had to
quickly find a buyer for its partner's interest in JEDI, as the partner wanted to sell its interest.
Otherwise, Enron would have to consolidate JEDI into its financial statements, which would wipe
out much of its 97 reported profits and put millions of dollars of debt back on its balance sheet.
Unfortunately, Enron could not find a party willing to pay for its former partner's 50% interest in
JEDI by year-end. So Enron and Vinson & Elkins quickly formed a new partnership managed by
an Enron executive – called "Chewco" – to purchase the third party's interest. Because Enron was