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

hedged through traditional transactions with third parties. Employing artifices similar to the
Rhythms transactions, Enron, with the participation of Andersen and Vinson & Elkins, who prepared
the transaction documents, set up the Raptors. More details on the Raptors follows in 477-495.
(a) Manipulative Transactions Involving LJM
466. In addition to Rhythms and the Raptors, Enron and the LJM partnerships engaged in
at least another 20 manipulative transactions from 9/99 through 7/01. These included:
(i) Cuiaba
467. In a transaction made effective 9/99, Enron sold LJM1 a 13% stake in a company
building a power plant in Cuiaba, Brazil for $11.3 billion. This reduced Enron's ownership to the
point where Enron purportedly did not control the entity and therefore did not have to consolidate
its interest. This sale enabled Enron to improperly realize $34 million of mark-to-market income
in the 3rdQ 99, and another $31 million of mark-to-market income in the 4thQ 99. In 8/01, Enron
repurchased LJM1's interest in Cuiaba for $14.4 million.
468. LJM1's equity investment in Cuiaba, however, was not "at risk" within the meaning
of the relevant accounting rule because Enron had agreed to make LJM1 whole for its investment.
Thus, Enron was required to consolidate the entity, but did not and should not have improperly
recognized the mark-to-market gains from the gas supply contract.
(ii) ENA CLO
469. In a transaction dated 12/22/99, Enron North America ("ENA") pooled a group of
loans receivable into a trust to sell $324 million of notes, equity and securities known as
collateralized loan obligations ("CLO's"). These CLO's were split into separate "tranches" based on
risk ratings and other criteria. The tranches were marketed to institutional investors by Bear Stearns.
When no outside buyer could be found for the lowest-rated tranches, these tranches were sold to
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