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

engaged in swapping capacity of this dark fiber with other telecom companies and recognized
income from these swaps. Enron abused this swapping of capacity to manipulate its financial results.
528. Notwithstanding that Enron failed utterly in forgoing relationships with content
providers, in creating a platform that could deliver this content, and in completing meaningful sales
to end-users, Enron nonetheless found sufficient willing counterparties with which to engage in
broadband trading and dark fiber swaps. 13 Many of the trades and swaps were undertaken primarily
to give the illusion of trading activity and to report fictitious income. In fact, most of the $120
million in 99 revenue which Enron attributed to broadband was from dark fiber swaps.
529. Not only was Enron's accounting for these swaps and trades improper, the actual
value of the assets exchanged was greatly overstated. Enron's trading partners were willing to enter
into the swaps because they also had excess capacity. The cost of the acquired capacity was booked
as an asset while the sale of capacity was reported as revenue such that the financial statements of
both companies involved in the swaps were improved by inflating the price. Enron engaged in these
transactions with several telecom companies. Swaps and trades were made with Dynegy, Williams,
El Paso, Metromedia Fiber, Acrie Networks, Qwest, Level 3, 360 Networks, and Touch America,
among other players.
530. As The New York Times reported on 3/29/02:
[O]n Sept. 30, a Sunday and the final day of the third quarter, Qwest signed a deal to
pay Enron $308 million for assets that included so-called dark fiber along a route
from Salt Lake City to New Orleans. Dark fiber refers to idle network strands that
require additional investments in electronic equipment before they can be put into
service. In exchange, Enron agreed to pay Qwest $195.5 million for "lit wavelength,"
or active fiber optic cable services, over a 25-year period; each company exchanged
checks for about $112 million around the close of the deal.
13 In dark fiber swaps, the counterparties agree to lease a portion of another broadband
company's fiber optic network in exchange for leasing a portion of that company's network to the
counterparty. A broadband trade is the delivery of data content through the fiber optic network.
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