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

danger of losing that rating when the true structure of its off-balance-sheet partnerships and SPEs
became known and its true financial condition was revealed.
(q) In fact, Enron did not deserve an investment-grade credit rating and did not
have a solid or substantial financial structure because it was inflating the value of its assets by
billions of dollars while concealing billions of dollars of debt that should have been on its balance
sheet. As a result, Enron's true financial structure was extremely fragile.
(r) As a result of the foregoing, the forecasts for strong continued revenue and
earnings growth for Enron's wholesale and retail energy operations were completely false, in part,
because the historical financial performance and condition of those operations had been materially
falsified – thus there was no real basis upon which to forecast such further growth – and because
neither of those businesses had the current strengths or success to justify the forecasts and claims for
future growth that were being made.
(s) As a result of the foregoing, the revenue and EPS forecasts being made by and
for Enron going forward were also grossly false because historical earnings, upon which those
forecasts were based, were falsified and the result of improper accounting manipulation. In truth,
Enron's various business operations not only had huge concealed losses, which would have to be
recognized and would very adversely impact Enron's financial results, but those core business
operations simply did not have the strength or success necessary for them to generate anywhere near
the kind of revenue and profit growth being forecast for them.
340. In mid-8/01, a management level employee in Enron wrote Lay a letter setting forth
some of the massive irregularities that were going on inside Enron:
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