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

ating and high stock price could only be maintained by (i) limiting the amount of debt shown on
Enron's balance sheet; (ii) reporting strong current period earnings; and (iii) forecasting strong future
revenue and earnings growth. Yet Enron was able to achieve these ends only through pursuing an
increasing number of phony transactions, many of which were accomplished by increasing the
number and size of transaction entities which were supposedly independent of Enron but which, in
fact, Enron controlled through a series of secret understandings and illicit financing arrangements,
including the LJM1 and LJM2 partnerships. The creation of these SPEs and the billions of dollars
of complex transactions Enron engaged in with them were accomplished with the knowing and
active participation of Enron's bankers, lawyers and accountants. Enron's illicit financial transactions
with the SPEs identified above allowed Enron to conceal hundreds of millions of dollars of losses
and generate hundreds of millions of dollars of phony profits, while concealing billions of dollars
of debt that belonged on its balance sheet and inflating its reported stockholders' equity by billions
of dollars. As a result of reporting strong earnings, the apparent success of its business and its future
earnings growth forecasts, Enron had unlimited access to the capital markets, borrowing billions of
dollars in the commercial paper markets and selling Enron securities to the public. Enron and its
commercial/investment bankers, working with Enron's lawyers and accountants, raised at least $6
billion in new debt and equity capital from public investors through numerous securities offerings
between late 96 and mid-01, thus raising the capital necessary to allow Enron to repay or pay down
its short-term debt and continue to operate while associated entities, like Azurix, New Power,
Osprey, Yosemite, Enron Credit Linked Notes Trust and Marlin, raised some $4 billion more, which
directly and/or indirectly benefitted Enron. These Enron offerings are shown below:
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