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

41. Just eight months after announcing this contract with great fanfare and just weeks
after representing that testing of the system in four cities had succeeded and that the service was
being launched nationwide, Enron was forced to abandon the venture due to the failure of Enron's
technology and the inability of Blockbuster to obtain the ability to provide content in digital format.
But Enron did not reverse the huge profits it had secretly recorded and improperly reported on this
transaction earlier, for to do so would have not only exposed its ongoing abuse and misuse of mark-
to-market accounting, but also would have crushed Enron's stock at a time when Enron and the other
participants in the scheme were desperately attempting to support Enron's then falling stock price
so that it would not fall below certain trigger prices in the SPE agreements which would obligate
Enron to pay off investors in the SPEs. CIBC did not force Enron to honor its secret guarantee
against losses, as it knew to do so would undermine Enron's fragile financial condition, but rather,
carried it as part of its overall exposure to Enron. After CIBC became an investor in the Blockbuster
VOD joint venture with Enron and received its secret guarantee, CIBC refused to disclose its
economic relationship with Enron or its affiliates, continuing to use the same "boilerplate"
disclosures in its analyst reports on Enron, concealing its investment and resulting conflicts of
interest.
H. New Power
42. Another example of how Enron, Vinson & Elkins, Andersen and CIBC falsified
Enron's reported results is the New Power transaction, including the New Power IPO, by which
Enron improperly recognized $370 million in profits in the 4thQ 00. In 00, Enron owned millions
of shares of New Power stock – then a private company – and controlled New Power. If Enron could
take New Power public and create a trading market in its stock, then Enron could recognize a profit
on the gain in value on its shares by "hedging" that gain via yet another non-arm's length transaction
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