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

facilitate and finance LJM2's illicit deals and manipulative devices with Enron. In addition, JP
Morgan and CitiGroup administered all the financial affairs of LJM2, i.e., profit distributions
and capital calls, and were completely knowledgeable about the details of LJM2's deals, finances
and distributions.
28. The reason the banks put up virtually all the money to pre-fund LJM2 in 12/99 was
that they knew Enron doing the 99 year-end deals with the LJM2 and its SPEs was indispensable to
Enron avoiding reporting a very bad 4thQ 99 – which would have caused its stock to plunge. These
vital year-end 99 deals included:
(a) Collateralized Loan Obligations ("CLOs"). On 12/22/99, Enron pooled
purchaser CLO rights and sold the lowest-rated tranche to Whitewing LLP (an Enron affiliate) and
LJM2. Whitewing loaned LJM2 the money to purchase its interest in the CLOs. Enron secretly
guaranteed Whitewing's investment and loan to LJM2. This transaction allowed Enron to record the
sale of millions of dollars in the 4thQ 99 to an entity that should have been consolidated.
(b) Nowa Sarzyna (Poland Power Plant). On 12/21/99, Enron sold LJM2 a 75%
interest in the Nowa Sarzyna power plant. Enron had tried to sell this interest by year-end to an
independent buyer but could not find an independent buyer in time, so it used LJM2, which paid $30
million. This transaction moved millions of dollars of debt off Enron's balance sheet. This was a
sham transaction. The debt financing required Enron to maintain ownership of at least 47.5% of the
equity until the project was completed. However, the lender granted a waiver of this until 3/31/00,
at which time Enron and Whitewing reacquired LJM2's equity interest and repaid that loan.
(c) MEGS, LLC. On 12/29/99, Enron sold LJM2 a 90% equity interest in
MEGS, a natural gas system in the Gulf of Mexico. This allowed Enron to avoid consolidating the
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