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

621. The true effect of "early settlement" and the undisclosed triggers was that Enron was
betting over 100 million shares of its own stock against market volatility and was multiplying, not
reducing, the Company's risk. To disclose this about the LJM2/Raptors' triggers (among others)
would mean revelation of the fact that Enron's hedging activities were not only bogus – the risk had
not been truly hedged – but also that the purported hedging transactions had actually increased the
risks to Enron, not reduced them. The banks and Vinson & Elkins had structured and prepared the
documents for the bogus hedging transactions. Simply stated, those on the inside knew that the
stock price issuance triggers were toxic for Enron.
622. For example, in a 6/01 meeting between Enron managers and two CS First Boston
managing directors – six weeks before the filing of the Registration Statement for Enron's zero
coupon convertible notes – CS First Boston discussed with Enron its amazement at the statements
Enron was making in light of the undisclosed dire circumstances presented by the triggers in Enron's
bogus hedging transactions. At that time, CS First Boston's managing directors stated, "How can
you guys keep doing this?" – referring to Enron's repeated statements to the market that its stock was
undervalued. CS First Boston's managing directors continued that even at $40 per share, Enron's
stock was still overvalued in their view: "Do employees actually believe it's worth what
management is saying?" (At that time, Enron's stock was trading at approximately $48.50.) The CS
First Boston managing directors added, "You guys are at a critical price point right now," referring
to the bogus Raptors hedges, and stated that if Enron's stock continued to fall, that would cause
Raptor to unwind and the massive credit support provided by Enron to come due. CS First Boston's
managing directors asked the Enron managers, "Do you know how much off-balance sheet debt you
[Enron] have?" When the Enron replied that they thought it was around one to two billion dollars,
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