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

(1) Mahonia Transactions with JP Morgan
559. For instance, Enron and JP Morgan used Mahonia, a Jersey company, and related
companies to arrange approximately $2.2 billion of "back to back" transactions between 12/97 and
12/00. Specifically, Enron Natural Gas Marketing Corp. or Enron North America Corp., as sellers,
entered into six separate agreements characterized as "forward sales contracts" that purported to
provide for the delivery of crude oil and natural gas over a 4-to-5 year period (the "Forward Sale
Contracts") with either Mahonia or Mahonia Gas (collectively "Mahonia"), as purchasers. In reality,
these were loans to Enron disguised as hedging contracts. As the Houston Chronicle later noted:
As Enron's troubles mounted, the Houston company eventually turned to Mahonia
as a sort of surrogate bank, these people say, using it to raise at least $2 billion in
financing over the years.
For J.P. Morgan, the arrangement was lucrative - at least at first. The bank
received as much as $100 million in revenue.
* * *
The Mahonia arrangement - which J.P. Morgan hadn't disclosed to investors
until last month's suit - represents just a sliver of the many complicated ventures
Enron participate in. But unlike the hundreds of partnerships Enron constructed on
its own to keep debt off its books, this venture was conceived, launched and operated
by J.P. Morgan. Though many Wall Street firms helped finance Enron - acting as
traditional lenders, underwriters and advisors - the fact that J.P. Morgan set up the
partnership suggests that Wall Street may have played a more active role in the Enron
scandal.
560. The forward sales contract was a sham. First, Enron never intended to deliver the
subject crude oil and natural gas as evidenced by the fact that it did not enter into contracts with
suppliers to "hedge" its obligations for delivery of the crude oil and natural gas required to be
delivered under the terms of the forward sales contracts, which it would have done in the ordinary
course of business if actual deliveries of crude oil and natural gas had been contemplated. Second,
Mahonia did not enter into contracts with third parties for the delivery of the oil and gas to be
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