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

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and Content Delivery which remain solidly on track. The dissolution of the Blockbuster exclusivity is a very minor issue and is in no way a harbinger of Content Delivery woes. 311. In mid 3/01, Skilling traveled to Portland, Oregon to meet privately with Enron broadband executives and employees. In the meeting, Skilling stated that the broadband business faced a "complete meltdown." Despite that knowledge, in late 3/01, Skilling stated to the public in a meeting in New Orleans that the broadband operation was going full speed – "pedal to the metal." 312. On 3/31/01, Lehman Brothers issued a report on Enron. It rated Enron a "Strong Buy" and continued to forecast 01 and 02 EPS of $1.82 and $2.18 for Enron. Lehman Brothers also raised the five-year secular growth rate to 20% for Enron. It also stated: * Relative Valuation Has Bottomed Out. Mounting Evidence Of Major New Markets Will Act As Catalyst To Expansion In Multiple. At A Minimum We Expect Collection Of The 20% Growth In EPS. * * * New Market Catalyst Coupled With Solid Earnings Gains Likely To Lift Stock Out Of Doldrums: Enron has quietly lifted earnings guidance from 15% to 20% over the last 12 months indicating that the present rate is sustainable for the foreseeable future.... Significant traction has been gained. Presentations at the annual analyst meeting and the assumption of a higher profile in quarterly investor briefings lead us to believe that market penetration in these new areas will rekindle interest in the stock. 313. As Enron approached the end of its 1stQ 01, Enron, its lawyers, accountants and bankers came under excruciating pressure to support Enron's stock price. Enron's stock price was weakening dramatically, falling to as low as $51-33/64 on 3/22/01, piercing more stock issuance price triggers. Enron, its accountants, bankers and lawyers knew that if Enron disclosed the true nature of its finances in reporting its 1stQ 01 results, i.e., that its profits were grossly overstated while its debt levels had been understated by billions and with the now triggered stock issuance obligations, Enron's stock would collapse, triggering further stock issuance guarantees, causing - 252 -
Enron to lose its investment-grade credit rating and bringing the Enron Ponzi scheme to a halt. Thus, secretly behind the scenes, Enron, Andersen, Vinson & Elkins and certain of Enron's bankers worked feverishly in late 3/01 to yet again restructure several of the SPEs with which Enron had done illicit transactions to artificially boost its profits and high debt, especially the Raptors. However, because Enron and its bankers, accountants and lawyers were running out of tricks to manipulate Enron's finances, they were forced to repeat the restructuring done at year-end 00 by recapitalizing the Raptor SPEs in a fashion that again simply increased the number of shares of stock Enron would have to issue if its stock declined to now lower trigger prices. This action represented a massive double- down bet on the price of Enron stock, which put tremendous pressure on the participants in the scheme to keep Enron stock trading at high levels. 314. Nevertheless, Enron and its bankers continued to assure investors and the markets that Enron's core wholesale energy and retail energy businesses were very strong and that its broadband content delivery business would still be able to show significant, albeit slower growth, that its broadband intermediation business actually was benefitting from the volatility and decline of broadband access prices and that the worst was over with respect to Enron's Dabhol power plant situation in India. 315. On 4/3/01, Enron issued a release regarding a new long-term energy management contract with J.C. Penney: Enron Energy Services, a subsidiary of Enron Corp., and J.C. Penney Company, Inc., ... announced today a long-term energy management agreement covering the purchase of more than $600 million in energy-related commodities. 316. On 4/17/01, Enron reported better-than-expected 1stQ 01 results: Enron Corp. announced today an 18 percent increase in diluted earnings per share to $0.47 for the first quarter of 2001 from $0.40 a year ago. Results for the quarter include: - 253 -
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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
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fraudulent scheme by disguising deb
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fraudulent scheme by repeatedly iss
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BACKGROUND TO THE CLASS PERIOD 109.
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"Enron's water subsidiary initially
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• Enron just had a great, great q
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loans to the SPEs and Barclays had
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without any adequate feasibility st
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Registration Statement was signed b
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• Wholesale Energy Operations and
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... Together, our business units re
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10-K report. The Form 10-K containe
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performance and all of the indicati
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150. On 5/7/99, Lehman Brothers iss
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Communications Is Running Faster an
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costs. For example, Enron picked th
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(k) Under Mark-Jusbasche, Enron Int
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(p) As a result of the foregoing, t
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160. On 7/14/99, The Houston Chroni
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In discussing the most recent decli
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• Enron expects this sector ... t
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178. On 10/12/99, Bloomberg reporte
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three times the $850 million contra
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Enron Corp. had a 12.5% increase in
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months there was speculation of a c
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* * * ECI has two new and related b
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198. On 1/18/00, CS First Boston is
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• This is a huge step forward for
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208. On 1/21/00, Merrill Lynch issu
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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
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
Page 230 and 231: Well, we were up, 1998, we were up,
Page 232 and 233: • Growth Targets Lifted .... * *
Page 234 and 235: acceleration of growth and creation
Page 236 and 237: Our talented people ... financial s
Page 238 and 239: stock, selling 1.1 million shares i
Page 240 and 241: evenue. Even though Enron could not
Page 242 and 243: ecognized a multi-million dollar pr
Page 244 and 245: exchange for orders by Enron in 99
Page 246 and 247: streaming content because the EIN a
Page 248 and 249: not have the legal right to electro
Page 250 and 251: illions of dollars while concealing
Page 252 and 253: 4 years .... We are projecting mini
Page 258 and 259: • a 281 percent increase in reven
Page 260 and 261: [W]e ... said to investors, as long
Page 262 and 263: growth in '98, 18% growth in '99 an
Page 266 and 267: conference calls and in follow-up c
Page 268 and 269: stated: 332. On 7/12/01, Skilling a
Page 270 and 271: 337. On 7/25/01, Bloomberg News rep
Page 272 and 273: financial condition and liquidity -
Page 274 and 275: equipment, a significant portion of
Page 276 and 277: million up-front cash just to sign
Page 278 and 279: (i) Enron entered into dark-fiber s
Page 280 and 281: intermediation. Even worse, Enron g
Page 282 and 283: sense, to "just drink more Enron Ko
Page 284 and 285: Dear Mr. Lay, * * * Skilling's abru
Page 286 and 287: . Cliff Baxter complained mightily
Page 288 and 289: is up 40%, earnings per share up ab
Page 290 and 291: CEO Jeff Skilling Resigns; A Negati
Page 292 and 293: 356. On 8/28/01, Lay was interviewe
Page 294 and 295: ... But all of the problems I have
Page 296 and 297: 362. On 10/9/01, Merrill Lynch issu
Page 298 and 299: - $180 million associated with the
Page 300 and 301: income, to about $400 million and a
Page 302 and 303: Enron Corporation (BUY) Third Quart
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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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