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

593. Enron also failed to disclose its obligations associated with Azurix. Atlantic Water
Trust was formed in 98 by Enron to purchase part of Azurix. Atlantic Water Trust was capitalized
in part by Marlin Water Trust which was capitalized by $915 million in debt and $125 million in
equity. The debt was supported in part by Enron stock. If Enron's stock dropped below $34.13 per
share, Enron was in default and was obligated to make up the difference. Enron failed to adequately
disclose this obligation.
(2) Broadband Services
594. As noted above, Enron had engaged in phony transactions involving broadband,
leaving it with assets on its books which were impaired and could not be reasonably expected to
provide economic benefit to the Company, particularly since mid-00 when it became clear that there
was a glut of broadband capacity. Nonetheless, the Enron Defendants failed to make adequate and
timely writedowns to reflect the impairment, as required by SFAS No. 121.
595. In fact, the costs Enron capitalized for broadband services were not recoverable as
the Company never could develop an intelligent network. The broadband operating system was a
complete fiction and never developed beyond the conceptual stage. Enron by 12/31/00, most of the
network was still dark and not functioning. By 12/31/00, Enron only had enough capacity to reach
47,000 customers. Yet Enron failed to record charges for impairment until the end of the Class
Period.
(3) TGS
596. TGS was a partnership with Shell in which Enron owned 35%. The partnership
owned a gas pipeline in Argentina. Enron carried the investment at $500 million on its books but
it was worth far less than that. When it attempted to sell the investment in 00 it could not find a
buyer, yet Enron did not record an impairment charge for the loss.
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