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

614. The 12/31/97 Registration Statement, which incorporated Enron's Form 10-K for the
year-ended 12/31/96, also reported that Phase I of Enron's Dabhol plant was to begin commercial
operations in 12/98. This was false and misleading because cost overruns on the Dabhol project and
problems with political and regulatory officials, which had occurred by 12/31/97, ensured that the
plant would likely never begin commercial operations on the terms represented and, if begun,
commercial operations would result in huge losses because to break even Enron would have to
charge its only customer (the Indian state government) four times the price other power generators
were charging to supply electricity energy in order to recoup Enron's investment.
615. The Registration Statements also incorporated by reference all documents filed
pursuant to §13(a) of the 1934 Act prior to the respective offerings, including Enron's subsequently
filed 10-Ks, which misrepresented Enron's financial results, including earnings, the debt-to-equity
ratio, total debt, and shareholder equity, by failing to consolidate non-qualifying SPEs, as required
by GAAP and numerous other accounting misstatements, as described in 418-611. The
subsequently filed 10-Qs were also incorporated by reference, and contained unaudited financial
statements which were false and misleading as described therein. Enron has admitted these financial
results were materially false. The 12/31/97 Registration Statement, for instance, incorporated the
97 10-K since it was issued prior to the 7/7/98 and 11/24/98 notes offerings. The 97 10-K misstated
and understated the loss incurred by EES for 97, reported as $107 million, due to the overvaluation
of the EES contracts and abuse of mark-to-market accounting, as detailed herein.
616. The Offering Documents also made false and misleading statements about Enron's
financial-risk management and credit risk, concealing the substance, nature, and effect of the straw
transactions Enron was entering with the bankers. Contrary to the house of cards defendants had
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