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

502. SFAS No. 125, requires that the transferred assets be beyond the reach of the
transferor (Enron). In contrast, the Osprey offering stated that during the term of the senior notes,
Whitewing expected to hold, participate in and dispose of various designated assets. Indeed, all the
above activities, among others, were carried out by the General Partner, Egret I LLC, Enron's wholly
owned subsidiary. McMahon was a manager of Egret until he resigned in 5/00. Enron, through its
wholly owned subsidiary Egret, had sole discretion in valuing the assets that entered into Whitewing.
503. SFAS No. 125 also requires that the transferred assets be bankruptcy remote. By
contrast, the Osprey offering provided: "There is the possibility that if Enron were to become a
debtor in a case under the United States Bankruptcy Code, a bankruptcy court might recharacterize
Enron's obligation to make a payment to the Share Trust as being equivalent to an obligation to
purchase the Enron Shares from the Share Trust.... [I]f the Share Trust asserted a claim against
Enron ... a bankruptcy court might subordinate part or all of that claim to other claims against
Enron."
504. Enron, in fact, never surrendered control as required by SFAS No. 125. For example
according to the Osprey offering documents: (1) Egret was granted the right to make all decisions
regarding valuation of assets (this allowed Enron great latitude to manipulate the value of the
assets); and (2) the General Partner was responsible for the management and operations of
Whitewing. As holder of the managing member interest in Whitewing Management LLC, Egret
could appoint the officers of the General Partner.
505. Accordingly, the accounting for the transfers of assets to Whitewing should not have
been accounted for as sales, as opposed to loans, and Enron's improper accounting was false and
misleading. Indeed, as discussed above: (1) the transferred assets were never beyond Enron’s reach;
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