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

caused its stock to plunge and impaired the continued viability of the Enron Ponzi scheme from
which they were all benefitting.
648. The blatant self-dealing by Enron's banks has not gone unnoticed:
Many institutional investors declined to buy into LJM2 because of Fastow's
conflict of interest. But some of the world's biggest institutions took a piece. Among
them were Citigroup, Credit Suisse Group, Deutsche Bank, JP Morgan, and
Lehman Brothers.
What were they thinking? Much of the world's financial community
turned out to be willing enablers of Enron. No wonder "Wall Street credibility"
is fast becoming an oxymoron. Investors are angry ....
Business Week, 2/11/02.
It is increasingly clear that Wall Street has known for years that many
corporations had wildly exaggerated earnings, but it didn't tell the investing public.
Some on the Street may be guilty of worse. Take the case of Enron Corp. and
Merrill Lynch & Co. Merrill executives helped create the LJM2 Enron
partnership and attracted institutional investors. As many as 100 of Merrill's own
top executives put their personal money into the deal. Why? Because Enron's
chief financial officer, Andrew S. Fastow, would run it, and he promised
enormous returns.... Fastow's glaring conflict of interest, which should have
stopped the Merrill executives, actually acted as an incentive to them: "A.
Fastow's dual role creates advantages for the fund and Enron," said the Merrill
Lynch prospectus sent to a select group of potential investors.
Business Week, 2/11/02.
Vast LJM2 Returns Lured Partners
The ... confidential LJM2 promotion promised returns of 30 percent or more
a year, and promoters suggested the actual returns could be even higher. Fastow,
for example, estimated in confidential reports to the LJM2 partners obtained by The
Washington Post that rates of return on investments with Enron reached as high as
2,500 percent.
Enron's closeness to LJM2 was reinforced not just by Fastow's role, but by
an appearance by Enron then-President Jeffrey Skilling at an LJM2 partnership
meeting in the fall of 2000.
In a Feb. 6, 2001 letter to investors, Fastow recounted a successful year with
"deal flow higher than originally expected" and the projected returns "far in excess
of the targeted 30%."
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