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

651. Each of the banks named as defendants knew:
(a) Enron had set up the LJM2 vehicle with the help of Merrill Lynch so that
Enron could use SPEs funded by that vehicle to engage in non-arm's-length self-dealing transactions
which would enrich the investors in the LJM2 partnership and, at the same time, permit Enron to
generate artificial profits and conceal its true debt level by moving billions of dollars of debt off its
balance sheet and onto the balance sheet of LJM2's SPEs;
(b) Enron was also engaging in similar non-arm's-length transactions with another
limited partnership and associated SPE known as Chewco, which was also permitting Enron to
artificially inflate its reported earnings while moving large amounts of debt off its balance sheet;
(c) Enron's actual financial condition and results from operations were far worse
than what was being publicly disclosed or presented: (i) because Enron was falsifying its financial
results and misusing and abusing mark-to-market accounting, Enron's profitability was far less than
publicly reported; (ii) because Enron was improperly moving debt off its balance sheet and onto the
balance sheets of entities it secretly controlled, Enron's true debt level and leverage was much higher
than what was being publicly presented; and (iii) because of the foregoing, Enron's liquidity and
creditworthiness were far worse than publicly known and its financial condition much more
leveraged and precarious than was being disclosed to public investors; and
(d) Enron had entered into a number of transactions with secretly controlled SPEs,
which would require Enron to issue millions of shares of Enron common stock. If Enron's common
stock fell below trigger prices ranging from $83-$19 per share, the debt of the SPEs with which
Enron was doing business would not, in fact, be non-recourse to Enron as represented but, in fact,
would become and be recourse to Enron if, as and when Enron's credit rating was lowered –
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