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

million, giving LJM2 its specified return and permitting Porcupine to enter into a hedging transaction
with Enron. Enron and Porcupine immediately executed a total return swap on 18 million shares of
New Power at $21 per share. As a result, Enron improperly recorded an accounting gain related to
the Hawaii transactions of approximately $370 million in the 4thQ 00.
(iv) Raptors Restructuring
489. Enron manipulated its results as part of restructuring the Raptors such that it
improperly recorded increases to its equity and assets rather than reversing income that had
previously been recorded improperly. By 11/00, Enron had entered into derivative transactions with
Raptors I, II and III with a notional value of over $1.5 billion. Enron internally calculated its net gain
(and the Raptors' corresponding net loss) on these transactions to be slightly over $500 million.
Enron could recognize these gains – offsetting corresponding losses on the investments only if the
Raptors had the capacity to make good on their debt to Enron. Since they did not, Enron was
required to record a "credit reserve," reflecting a charge on its income statement. Enron improperly
did not record the loss as it would defeat the very purpose of the Raptors, which was to shield
Enron's financial statements from reflecting the change in value of its merchant investments.
490. In the 1stQ 00, the credit capacity of the Raptors continued to decline. To avoid
taking the charge to reflect the $500 million credit reserve, defendants restructured the Raptors.
During the 1stQ 01, Skilling told employees that fixing the Raptors' credit capacity problem was one
of the Company's highest priorities.
491. The restructuring transaction, which was made effective as of 3/26/01, consisted of
two principal parts: a cross-collateralization of the Raptors and an additional infusion of Enron stock
contracts. The restructuring allowed Enron to record only a $36.6 million credit reserve loss for the
1stQ 01, rather than the $504 million loss Enron was required to record pursuant to GAAP.
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