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

unnoticed:
30. This blatant self-dealing by Enron's banks during the Class Period has not gone
Many institutional investors declined to buy into LJM2 because of Fastow's
conflict of interest. But some of the world's biggest institutions took a piece. Among
them were Citigroup, Credit Suisse Group, Deutsche Bank, J.P. Morgan Chase,
and Lehman Brothers.
What were they thinking? Much of the world's financial community
turned out to be willing enablers of Enron. No wonder "Wall Street credibility"
is fast becoming an oxymoron. Investors are angry....
* * *
It is increasingly clear that Wall Street has known for years that many
corporations had wildly exaggerated earnings, but it didn't tell the investing public.
Some on the Street may be guilty of worse. Take the case of Enron Corp. and
Merrill Lynch & Co. Merrill executives helped create the LJM2 Enron
partnership and attracted institutional investors. As many as 100 of Merrill's own
top executives put their personal money into the deal. Why? Because Enron's
chief financial officer, Andrew S. Fastow, would run it, and he promised
enormous returns.... Fastow's glaring conflict of interest, which should have
stopped the Merrill executives, actually acted as an incentive to them: "A.
Fastow's dual role creates advantages for the fund and Enron," said the Merrill
Lynch prospectus sent to a select group of potential investors.
Business Week, 2/11/02. As reported by Bloomberg on 2/5/02:
"In this case, the Enron banker at each of the firms probably went back and
said, 'This is a sweetheart deal and we can make a lot of money, Enron is a huge
player in this business and they have access to some juicy trades,'" [a professor of
finance at New York University and a former partner at Goldman, Sachs & Co.] said.
"The bankers wanted to suck up some of the juice."
According to The Washington Post on 3/22/02:
Vast LJM2 Returns Lured Partners
The ... confidential LJM2 promotion promised returns of 30 percent or more
a year, and promoters suggested the actual returns could be even higher. Fastow,
for example, estimated in confidential reports to the LJM2 partners obtained by The
Washington Post that rates of return on investments with Enron reached as high as
2,500 percent.
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