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

Vinson & Elkins also knew because the hedged statements were prepared and reviewed by the
lawyers and Vinson & Elkins gave opinions on them.
629. For example, the Offering Documents for Enron's zero coupon convertible notes, filed
7/18/01, incorporated the following:
Credit risk relates to the risk of loss that Enron would incur as a result of the
nonperformance by counterparties pursuant to the terms of their contractual
obligations. Enron maintains credit policies with regard to its counterparties that
management believes significantly minimize overall credit risk. These policies
include an evaluation of potential counterparties' financial condition (including credit
rating), collateral requirements under certain circumstances and the use of
standardized agreements which allow for the netting of positive and negative
exposures associated with a single counterparty.
* * *
Enron does not anticipate any material impact to its financial position or results of
operations as a result of nonperformance of third parties on financial instruments
related to non-trading activities.
These statements were incorporated in Enron's Offering Documents for its securities offerings in 00-
01. The 00 10-K, incorporated in Offering Documents in 01, further represented that Enron's total
reserves for credit were only $452 million as of year-end 00.
630. The statements above were false and misleading. Enron's credit exposure in 00 due
to the LJM2/Raptors transactions alone – over $250 million – was not reflected in the reserves. In
01 Enron's credit exposure due to the LJM2/Raptors transactions, alone, was over $500 million as
of 4/01 and $1 billion as of 7/01. And, contrary to what was represented, Enron, its banks and
Vinson & Elkins did anticipate a material impact to the Company's financial position due to Enron's
credit exposure. Indeed, from the fall of 00 to 01, Enron's stock price was spiraling downward,
piercing equity issues, and triggering massive credit exposure to the Company. The house of cards
was crumbling before the eyes of those who engaged and participated in constructing it, so that they
could protect hundreds of millions of dollars of fees, commissions and other charges.
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