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

short, the non-public offering memorandum was an invitation to join in the benefits of self-dealing
transactions with Enron. To the extent that Enron's bankers and the top executives of those banks
were permitted to invest in LJM2, this was a reward to them for their ongoing participation in the
scheme.
647. It was indispensable that LJM2 be formed before year-end 99 because of the need to
use it as a vehicle to fund new SPEs to deal with Enron to create huge profits for Enron in the 4thQ
99 so it could meet and exceed its forecasted 99 earnings. However, as had been the case with
Chewco at year-end 97, there was tremendous time pressure and Merrill Lynch could not raise the
money from outside investors in LJM2 in time to fund LJM2 by year-end 99 with sufficient capital
to enable it to do the desperately needed transactions with Enron. So, in an extraordinary step,
Enron's banks and bankers (JP Morgan, CIBC, CitiGroup, Deutsche Bank, CS First Boston, Lehman
Brothers and Merrill Lynch), knowing that LJM2 was going to be an extraordinarily lucrative
investment, put up their money early – on or about 12/22/99 – virtually 100% of the monies
needed to initially fund LJM2, i.e., many times more than their allocated shares. This money
(about $14 million), plus a $65 million loan from JP Morgan, provided sufficient funding to enable
Enron to engage in the Whitewing, CLO, Nowa Sarzyna Power Plant, MEGS natural gas and
Yosemite certificates deals from 12/22-29/99, SPEs funded by LJM2 – transactions that generated
millions in phony profits for Enron, just before year-end 99, and moved hundreds of millions of
dollars of debt off Enron's balance sheet. Then, after LJM2 was fully funded in early 00 and other
investors' money flowed into LJM2, the banks' "over-funding" in 12/99 was adjusted for in the
subsequent capital contributions to LJM2. The reason the banks put up virtually all the money to
fund LJM2 in 12/99 was that they knew Enron doing the 99 year-end deals with the LJM2 SPEs was
indispensable to avoiding Enron reporting a very bad 4thQ 99 and year-end 99 – which would have
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