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

declined, Swap Sub would be unable to perform on the put, and Enron's purported hedge on
Rhythms would fail.
457. In 1stQ 00, Skilling decided to liquidate the Rhythms position, due to the expiration
of the lock-up on Rhythms stock, the decline in the value of Rhythms stock, and the continuing
volatility of the Rhythms position and the hedge. This alone indicates that Skilling was aware of the
impact of the sham hedging transactions on Enron, as well as the improper non-consolidation of the
SPE by Enron.
458. Because of the decline in price of Rhythms stock, the Rhythms options were
calculated to have a value of $207 million. In exchange for terminating these options (and receiving
approximately $27 million cash), Swap Sub returned Enron shares having an unrestricted market
value of $234 million. The use of the unrestricted value of the shares was improper, however,
because the Enron shares were not unrestricted, and still carried a four-year contractual restriction.
459. In 3/00, several Enron employees (Fastow, Kopper, Glisan, Kristina Mordaunt, Kathy
Lynn and Anne Yaeger Patel) had obtained financial interests in LJM. While the initial capital
contributions of the partners were a modest $25,000 for Fastow, $5,800 each for Glisan and
Mordaunt, and smaller amounts for the others – a total of $70,000 – the Enron employees received
massive returns on their investments. For example, in return for his $25,000 investment, Fastow
received $4.5 million on 5/1/00. Glisan and Mordaunt each received approximately $1 million on
their $5,800 investments within a matter of one or two months.
460. In late 99, Fastow created a second partnership, LJM2, with Fastow as the indirect
general partner. LJM2 was to be a much larger private equity fund than LJM1. The Board
unanimously approved the formation of LJM2 after the Finance Committee approved the transaction.
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