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

Enron's other Offering Documents for securities offerings during 00-01 incorporated the same
disclosure with either the same prices indicated or lower prices.
619. The purported disclosure was false and misleading because it misrepresented or
concealed the nature, substance and effect of the "provisions for early settlement." First, if Enron's
stock price declined below the stated price levels, then Enron had to issue more shares – as it did in
the Raptors – and the risk of this event was imminent. Second, the so-called disclosure concealed
that in Enron's bogus hedge transactions Enron bore the ultimate risk of the so-called hedges – Enron
was actually hedging with itself, not really hedging – and thus was multiplying, not reducing its
risk. None of these matters were disclosed. The bankers and Vinson & Elkins knew the undisclosed
facts – they were the ones that created the transactions containing the triggers. And it was well
known by them that if Enron's stock price hit those triggers it would decimate Enron because of
the quantity of shares that Enron would have to issue to bear the risk of the bogus hedges.
620. Third, the Offering Documents failed to disclose that "early settlement" could grossly
dilute Enron's common stock as it did in the case of the bogus hedging transactions – "early
settlement" was an imminent and highly negative risk. Fourth, the Offering Documents did not
disclose that the triggers concerning LJM2/Raptors transactions were, in fact, massive credit support
for Enron's bogus hedging transactions. Fifth, the Offering Documents concealed the magnitude of
the credit support, which in the case of the LJM2/Raptors transactions alone amounted to over $2
billion. And sixth, the range of the triggers was materially misrepresented as well: the
LJM2/Raptors transactions ranged from $57.50 to as high as $83 per share, which would have
signaled much higher risk if the true price range and nature, substance and effect of the triggers were
disclosed. Moreover, the cost to Enron just to maintain the credit support represented by the
undisclosed triggers was approximately $500 million as of 4/02/01.
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