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

consolidated financial statements. In 97, Enron needed to replace the limited partner's interest in
JEDI. In order to maintain JEDI as an unconsolidated entity, Enron needed to identify a new
independent partner. Unable to find any independent entity willing to invest, in early 11/97, Fastow
created a new entity to be the new limited partner, and named it "Chewco Investments" – after the
Star Wars character "Chewbacca." Kopper, an Enron employee who reported to Fastow, was
inserted as manager of Chewco, because, as Vinson & Elkins advised, since Kopper was not a senior
officer of Enron, his role in Chewco would not have to be disclosed. Vinson & Elkins prepared the
legal documentation for these entities.
437. Enron also put together a bridge financing arrangement, under which Chewco and its
members would borrow $383 million from two banks on an unsecured basis to buy out the limited
partner's interest from JEDI. The loans were guaranteed by Enron. However, the transaction did not
comply with SPE non-consolidation rules since Kopper, an Enron employee, controlled Chewco, and
Chewco had no third-party independent investors. In order to qualify for non-consolidation, Enron
sought to replace the bridge financing with another structure that would qualify Chewco as an SPE
with sufficient outside independent equity such that the consolidation of Chewco and JEDI into
Enron's financial statements could be avoided at year end 97.
438. To achieve this goal, in 12/97, Enron created a new capital structure for Chewco,
consisting of: (a) a $240 million unsecured subordinated loan to Chewco from Barclays, which
Enron guaranteed; (b) a $132 million advance from JEDI to Chewco under a revolving credit
agreement; and (c) $11.5 million in equity (representing 3% of total capital) from Chewco's general
and limited partners. On 12/18/97, Kopper transferred his ownership interest in Chewco to William
Dodson, Kopper's domestic partner. This sham transfer to Dodson was made for the sole purpose
of creating the false impression that Kopper, and thus Enron, had no formal interest in Chewco.
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