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

More documents

Recommendations

Info

something each of the banks named as defendants knew would occur if, as and when Enron's true financial condition became public or became known to the rating agencies. B. Involvement of JP Morgan 652. JP Morgan is a banking enterprise which had an extensive and extremely close relationship with Enron. During the Class Period, JP Morgan provided commercial banking and investment banking services to Enron, helped structure or finance one or more of Enron's illicit partnerships or SPEs, and helped Enron falsify its financial statements and misrepresent its financial condition by hiding almost $4 billion in debt that should have been on Enron's balance sheet, while its securities analysts were issuing extremely positive – and false and misleading – reports on Enron, extolling its business success, the strength of its financial condition and its prospects for strong earnings and revenue growth. In return for JP Morgan's participation in the scheme, on top of the huge underwriting and consulting fees, interest payments, commitment fees and other payments, JP Morgan received from Enron and related entities, top executives of JP Morgan were permitted to personally invest at least $25 million in the lucrative LJM2 partnership as a reward to them for orchestrating JP Morgan's participation in this fraud. 653. JP Morgan's relationships with Enron were so extensive that top officials of the bank constantly interacted with top executives of Enron, i.e., Lay, Skilling, Causey, McMahon or Fastow, on an almost daily basis throughout the Class Period, discussing Enron's business, financial condition, financial plans, financing needs, partnerships, SPEs and Enron's future prospects. JP Morgan actively engaged and participated in the fraudulent scheme and furthered Enron's fraudulent course of conduct and business in several ways. It participated in loans of over $4 billion to Enron during the Class Period. JP Morgan also helped raise over $2 billion from the investing public for Enron via the sale of securities during the Class Period. It helped structure and finance certain of - 450 -
the illicit SPEs and partnerships Enron controlled which were primary vehicles utilized by Enron to falsify its reported financial results. It engaged in transactions with Enron to disguise loans to Enron and help Enron falsify its true financial condition, liquidity and creditworthiness. 654. In interacting with Enron, JP Morgan functioned as a consolidated and unified entity. There was no so-called "Chinese Wall" to seal off the JP Morgan securities analysts from the information which JP Morgan obtained rendering commercial and investment banking services to Enron. Alternatively, even if some restrictions on the information made available to JP Morgan's securities analysts existed, those unilateral and self-serving actions are insufficient to prevent imputation of all knowledge and scienter possessed by the JP Morgan legal entity, as its knowledge and liability in this case is determined by looking at JP Morgan as an overall legal entity. 655. JP Morgan acted as an underwriter (or reseller) of billions of dollars of Enron securities. For instance: DATE SECURITY 10/97 $100 million 6-5/8% Enron notes 5/98 35 million shares Enron common stock at $25 per share 7/98 $500 million 6.40% and 6.95% Enron notes 2/99 27.6 million shares Enron common stock at $31.34 per share 2/01 $1.9 billion Enron zero coupon convertible notes 656. In addition, JP Morgan acted as underwriter of billions of dollars of other Enron- related securities. For instance: DATE SECURITY 10/00 27.6 million shares of New Power at $21 per share - 451 -
Page 2 and 3:
KEN L. HARRISON, STEVEN J. KEAN, RE
Page 4 and 5:
TABLE OF CONTENTS - i - Page PREAMB
Page 6 and 7:
... hiding losses/SEC violations)..
Page 8 and 9:
2 Certain defendants named herein,
Page 10 and 11:
to do so would incriminate them. Wh
Page 12 and 13:
y Enron to keep high-debt assets li
Page 14 and 15:
in JEDI, making it possible for tra
Page 16 and 17:
continued to accelerate, ultimately
Page 18 and 19:
financial condition and investment
Page 20 and 21:
it controlled, and was doing phony
Page 22 and 23:
Bobcat Raptor-IV Marlin Trust I Mar
Page 24 and 25:
to be utilized to engage in transac
Page 26 and 27:
facilitate and finance LJM2's illic
Page 28 and 29:
unnoticed: 30. This blatant self-de
Page 30 and 31:
LJM1 and LJM2 in transactions struc
Page 32 and 33:
and more of the stock issuance "tri
Page 34 and 35:
dollar contracts which allowed it t
Page 36 and 37:
41. Just eight months after announc
Page 38 and 39:
Dollars Per Share 30 25 20 15 10 5
Page 40 and 41:
Enron's financial condition to make
Page 42 and 43:
Enron's finances, but very likely w
Page 44 and 45:
Merrill Lynch CitiGroup Banks Named
Page 46 and 47:
CitiGroup Barclays Banks Named As D
Page 48 and 49:
The employee adds that anyone who q
Page 50 and 51:
of the SPEs Enron did business with
Page 52 and 53:
destroying millions of pages of doc
Page 54 and 55:
- Statement of Financial Accounting
Page 56 and 57:
eporting earnings from the 3rdQ 00
Page 58 and 59:
disclosures were crafted and approv
Page 60 and 61:
falsify its financial results and t
Page 62 and 63:
72. On 2/26/02, Dow Jones News Serv
Page 64 and 65:
Dollars Per Share 100 90 80 70 60 5
Page 66 and 67:
A. Lead Plaintiff PARTIES 79. Court
Page 68 and 69:
(g) Plaintiff Amalgamated Bank, as
Page 70 and 71:
D. Defendants and Related Parties (
Page 72 and 73:
Enron Corp. Defendant J. Skilling's
Page 74 and 75:
Dollars per Share Enron Corp. Defen
Page 76 and 77:
Enron Corp. Defendant S. Horton's Q
Page 78 and 79:
Page 80 and 81:
Page 82 and 83:
Page 84 and 85:
Page 86 and 87:
Ms. Olson [told] employees in Decem
Page 88 and 89:
Page 90 and 91:
Page 92 and 93:
Page 94 and 95:
Page 96 and 97:
Page 98 and 99:
Page 100 and 101:
(dd) Defendants John Mendelsohn ("M
Page 102 and 103:
(ii) The Marlin Water and Atlantic
Page 104 and 105:
public information, pocketing over
Page 106 and 107:
Dollars per Share $100 $80 $60 $40
Page 108 and 109:
As of 3/98 Executive Committee Comp
Page 110 and 111:
Steven J. KeanSenior Vice President
Page 112 and 113:
Kevin P. Hannon Chief Operating Off
Page 114 and 115:
shortly after their issuance and/or
Page 116 and 117:
(b) Defendant Thomas H. Bauer ("Bau
Page 118 and 119:
(l) Defendant Richard R. Petersen (
Page 120 and 121:
(4) Investment Banks 99.1 Each of t
Page 122 and 123:
Notes due 7/15/06 and 6.95% Notes d
Page 124 and 125:
devised, implemented and financed (
Page 126 and 127:
6.19% Senior Secured Notes due 03;
Page 128 and 129:
of and controlled by Bank of Americ
Page 130 and 131:
fraudulent scheme by disguising deb
Page 132 and 133:
fraudulent scheme by repeatedly iss
Page 134 and 135:
BACKGROUND TO THE CLASS PERIOD 109.
Page 136 and 137:
"Enron's water subsidiary initially
Page 138 and 139:
• Enron just had a great, great q
Page 140 and 141:
loans to the SPEs and Barclays had
Page 142 and 143:
without any adequate feasibility st
Page 144 and 145:
Registration Statement was signed b
Page 146 and 147:
• Wholesale Energy Operations and
Page 148 and 149:
... Together, our business units re
Page 150 and 151:
10-K report. The Form 10-K containe
Page 152 and 153:
performance and all of the indicati
Page 154 and 155:
150. On 5/7/99, Lehman Brothers iss
Page 156 and 157:
Communications Is Running Faster an
Page 158 and 159:
costs. For example, Enron picked th
Page 160 and 161:
(k) Under Mark-Jusbasche, Enron Int
Page 162 and 163:
(p) As a result of the foregoing, t
Page 164 and 165:
160. On 7/14/99, The Houston Chroni
Page 166 and 167:
In discussing the most recent decli
Page 168 and 169:
• Enron expects this sector ... t
Page 170 and 171:
178. On 10/12/99, Bloomberg reporte
Page 172 and 173:
three times the $850 million contra
Page 174 and 175:
Enron Corp. had a 12.5% increase in
Page 176 and 177:
months there was speculation of a c
Page 178 and 179:
* * * ECI has two new and related b
Page 180 and 181:
198. On 1/18/00, CS First Boston is
Page 182 and 183:
• This is a huge step forward for
Page 184 and 185:
208. On 1/21/00, Merrill Lynch issu
Page 186 and 187:
The company hopes to capture 10 per
Page 188 and 189:
of mark-to-market accounting by ado
Page 190 and 191:
(ii) EES entered into demand-side-m
Page 192 and 193:
(j) To inflate the purported revenu
Page 194 and 195:
(q) As a result of the foregoing, t
Page 196 and 197:
Andersen: 218. With respect to EES,
Page 198 and 199:
Fastow also appeared at the Enron A
Page 200 and 201:
227. On 4/12/00, CitiGroup issued a
Page 202 and 203:
communications segment. The wholesa
Page 204 and 205:
TRADING GROWING FASTER THAN EXPECTE
Page 206 and 207:
Enron and Blockbuster plan to intro
Page 208 and 209:
Page 210 and 211:
• The bandwidth trading component
Page 212 and 213:
Broadband Services In our view, Enr
Page 214 and 215:
• ENE reported 2Q00 EPS of $0.34,
Page 216 and 217:
• ... Enron Broadband Services ..
Page 218 and 219:
• In terms of content, Enron Broa
Page 220 and 221:
It also had over 10 additional tran
Page 222 and 223:
• Impressive wholesale energy res
Page 224 and 225:
271. As a result of defendants' fal
Page 226 and 227:
let alone continue to engage in sim
Page 228 and 229:
Retail Energy Services: ... Enron E
Page 230 and 231:
Well, we were up, 1998, we were up,
Page 232 and 233:
• Growth Targets Lifted .... * *
Page 234 and 235:
acceleration of growth and creation
Page 236 and 237:
Our talented people ... financial s
Page 238 and 239:
stock, selling 1.1 million shares i
Page 240 and 241:
evenue. Even though Enron could not
Page 242 and 243:
ecognized a multi-million dollar pr
Page 244 and 245:
exchange for orders by Enron in 99
Page 246 and 247:
streaming content because the EIN a
Page 248 and 249:
not have the legal right to electro
Page 250 and 251:
illions of dollars while concealing
Page 252 and 253:
4 years .... We are projecting mini
Page 254 and 255:
Page 256 and 257:
and Content Delivery which remain s
Page 258 and 259:
• a 281 percent increase in reven
Page 260 and 261:
[W]e ... said to investors, as long
Page 262 and 263:
growth in '98, 18% growth in '99 an
Page 264 and 265:
Page 266 and 267:
conference calls and in follow-up c
Page 268 and 269:
stated: 332. On 7/12/01, Skilling a
Page 270 and 271:
337. On 7/25/01, Bloomberg News rep
Page 272 and 273:
financial condition and liquidity -
Page 274 and 275:
equipment, a significant portion of
Page 276 and 277:
million up-front cash just to sign
Page 278 and 279:
(i) Enron entered into dark-fiber s
Page 280 and 281:
intermediation. Even worse, Enron g
Page 282 and 283:
sense, to "just drink more Enron Ko
Page 284 and 285:
Dear Mr. Lay, * * * Skilling's abru
Page 286 and 287:
. Cliff Baxter complained mightily
Page 288 and 289:
is up 40%, earnings per share up ab
Page 290 and 291:
CEO Jeff Skilling Resigns; A Negati
Page 292 and 293:
356. On 8/28/01, Lay was interviewe
Page 294 and 295:
... But all of the problems I have
Page 296 and 297:
362. On 10/9/01, Merrill Lynch issu
Page 298 and 299:
- $180 million associated with the
Page 300 and 301:
income, to about $400 million and a
Page 302 and 303:
Enron Corporation (BUY) Third Quart
Page 304 and 305:
of things - the LJM transactions we
Page 306 and 307:
Enron Continues As Market-Maker of
Page 308 and 309:
failing to eliminate additional hun
Page 310 and 311:
391. Rubin's and Harrison's effort
Page 312 and 313:
DEFENDANTS' SCHEME AND FRAUDULENT C
Page 314 and 315:
Enron Defendants had permitted Enro
Page 316 and 317:
Derrick 230,660 $ 12,563,928 John D
Page 318 and 319:
Dollars per Share $100 $80 $60 $40
Page 320 and 321:
executives will be generally hesita
Page 322 and 323:
and 99.9%. This level of certainty
Page 324 and 325:
ENRON'S FALSE FINANCIAL STATEMENTS
Page 326 and 327:
$12,000,000,000 $10,000,000,000 $8,
Page 328 and 329:
50.00% 45.00% 40.00% 35.00% 30.00%
Page 330 and 331:
8 Debt to equity is calculated usin
Page 332 and 333:
executed in accordance with managem
Page 334 and 335:
SPEs, under any accounting machinat
Page 336 and 337:
439. However, even after employing
Page 338 and 339:
(a) Enron Guarantee Fee 443. Enron
Page 340 and 341:
(2) LJM Partnerships 448. Enron als
Page 342 and 343:
comparable securities in the market
Page 344 and 345:
CS First Boston, Merrill Lynch, JP
Page 346 and 347:
hedged through traditional transact
Page 348 and 349:
gathering system in the Gulf of Mex
Page 350 and 351:
(b) Raptors (i) Raptor I 477. The f
Page 352 and 353:
only entered to avoid recognition o
Page 354 and 355:
million, giving LJM2 its specified
Page 356 and 357:
y a total of $1 billion in the unau
Page 358 and 359:
Skilling, knew of the decline, by w
Page 360 and 361:
(2) the transferred assets were not
Page 362 and 363:
S-K required the disclosure of the
Page 364 and 365:
Even though a misstatement of an in
Page 366 and 367:
522. In order for Enron to accrue r
Page 368 and 369:
engaged in swapping capacity of thi
Page 370 and 371:
earnings and separately disclosed i
Page 372 and 373:
practice was common in all trading
Page 374 and 375:
What made it all work, Dickson said
Page 376 and 377:
14 Securities that are bought and h
Page 378 and 379:
(4) Quaker Oats 557. Under one of i
Page 380 and 381:
supplied by Enron under the terms o
Page 382 and 383:
(2) Prepaid Swaps with CitiGroup an
Page 384 and 385:
In essence, his report concluded, E
Page 386 and 387:
Project Name Description Contract V
Page 388 and 389:
earnings below expectations. By 97,
Page 390 and 391:
content services business. In fact,
Page 392 and 393:
593. Enron also failed to disclose
Page 394 and 395:
Enron arrived in India in the early
Page 396 and 397:
holdings for $700 million. It is no
Page 398 and 399:
investment and credit decisions ref
Page 400 and 401:
Date of Offering Effective Date of
Page 402 and 403:
created in Enron, the Offering Docu
Page 404 and 405: 621. The true effect of "early sett
Page 406 and 407: FINANCIAL RISK MANAGEMENT * * * Enr
Page 408 and 409: Vinson & Elkins also knew because t
Page 410 and 411: could connect. Enron's BOS was to b
Page 412 and 413: not even make a broadband connectio
Page 414 and 415: 05/17/01 Enron Euro Credit Linked N
Page 416 and 417: usiness is the management of certai
Page 418 and 419: Yosemite Securities Trust I Offerin
Page 420 and 421: Communications Enron is developing
Page 422 and 423: (a) Annual Report on Form 10-K for
Page 424 and 425: ENRON HISTORICAL CONSOLIDATED FINAN
Page 426 and 427: Business of Enron DESCRIPTION OF EN
Page 428 and 429: Income Statement Data: SELECTED HIS
Page 430 and 431: • the transportation of natural g
Page 432 and 433: Balance Sheet Data (at end of perio
Page 434 and 435: wholesale customers to view Enron's
Page 436 and 437: ENRON HISTORICAL CONSOLIDATED FINAN
Page 438 and 439: Marlin Water Trust II/Marlin Water
Page 440 and 441: Retail Energy Services Enron Energy
Page 442 and 443: Cumulative effect of accounting cha
Page 444 and 445: A. General INVOLVEMENT OF THE BANKS
Page 446 and 447: manage such conflicts of interests.
Page 448 and 449: privately held entity created by En
Page 450 and 451: caused its stock to plunge and impa
Page 452 and 453: its financial results. Thus, the ba
Page 456 and 457: 7/01 Marlin Water Trust II, Marlin
Page 458 and 459: default puts" on Enron's publicly t
Page 460 and 461: were fraudulent and used to conceal
Page 462 and 463: 667. These phony commodity transact
Page 464 and 465: anging falsification of its financi
Page 466 and 467: DATE SECURITY 11/93 8 million share
Page 468 and 469: 8/01 $3 billion Enron credit facili
Page 470 and 471: a year in interest payments, and sy
Page 472 and 473: participation in the scheme to defr
Page 474 and 475: illicit partnerships or SPEs, and h
Page 476 and 477: 698. In 6/99, CS First Boston acted
Page 478 and 479: 703. In addition to the foregoing,
Page 480 and 481: These transactions included Marlin,
Page 482 and 483: of the firm, invested $22.5 million
Page 484 and 485: the CIBC legal entity, as its knowl
Page 486 and 487: sales where CIBC was one of the und
Page 488 and 489: not a true investor and was not at
Page 490 and 491: "It was nothing but a pilot project
Page 492 and 493: Dollars Per Share 30 25 20 15 10 5
Page 494 and 495: Tilney's wife was a Managing Direct
Page 496 and 497: otherwise to outside investors'" an
Page 498 and 499: an effort spearheaded by Schuyler M
Page 500 and 501: Barry S. Friedberg, $500,000 Chairm
Page 502 and 503: Flash Report" for 12/23/99 identifi
Page 504 and 505:
• Currently pitching to become En
Page 506 and 507:
Concurrently, Enron advised Merrill
Page 508 and 509:
742.19 Internally, Merrill Lynch co
Page 510 and 511:
if Enron defaulted within a given t
Page 512 and 513:
748. By the beginning of the Class
Page 514 and 515:
- something that Barclays was in a
Page 516 and 517:
length transactions with to generat
Page 518 and 519:
Brothers legal entity, as its knowl
Page 520 and 521:
5/99 $500 million 7-3/8% Enron note
Page 522 and 523:
financial information as Enron's le
Page 524 and 525:
instance: 5/00 $500 million 8.375%
Page 526 and 527:
and condition of Enron's business o
Page 528 and 529:
eturn for Deutsche Bank's participa
Page 530 and 531:
DATE TRANSACTION 7/98 $252 million
Page 532 and 533:
797. Deutsche Bank also actively en
Page 534 and 535:
would pay it a large fee for the ea
Page 536 and 537:
797.8 The Washington Post further f
Page 538 and 539:
797.12 Bankers Trust's role in Proj
Page 540 and 541:
797.17 In the words of the Joint Co
Page 542 and 543:
797.25 Project Tomas was structured
Page 544 and 545:
emaining from Bankers Trust to Enro
Page 546 and 547:
INVOLVEMENT OF VINSON & ELKINS 800.
Page 548 and 549:
accommodated Enron's desire for one
Page 550 and 551:
The document ... sharply criticizes
Page 552 and 553:
to "close," i.e., take place, and t
Page 554 and 555:
806. However, Enron could not find
Page 556 and 557:
810. During 12/97, Vinson & Elkins
Page 558 and 559:
day-to-day activities would be mana
Page 560 and 561:
equired to pay Enron on the "hedge"
Page 562 and 563:
these SPEs, Enron would have to tak
Page 564 and 565:
Vinson & Elkins Concealed the Phony
Page 566 and 567:
In March 2001, Enron acquired the l
Page 568 and 569:
ecause it participated in the negot
Page 570 and 571:
839. The related-party disclosures
Page 572 and 573:
846. The "disclosures" above are fa
Page 574 and 575:
The Attempted Coverup 850. In mid-8
Page 576 and 577:
3. There is a veil of secrecy aroun
Page 578 and 579:
854. The result of this letter - la
Page 580 and 581:
standpoint. In this regard, AA cons
Page 582 and 583:
A. General INVOLVEMENT OF ARTHUR AN
Page 584 and 585:
Andersen also consented to the use
Page 586 and 587:
905. Andersen's reports were false
Page 588 and 589:
investors that would hold assets an
Page 590 and 591:
915. Andersen also performed certai
Page 592 and 593:
ing to light documents illustrating
Page 594 and 595:
he was aware of many of the company
Page 596 and 597:
Andersen employees destroyed incrim
Page 598 and 599:
departments, knew about the excessi
Page 600 and 601:
a blind eye to the numerous red fla
Page 602 and 603:
• How Enron could, with its own c
Page 604 and 605:
Tallying all expected profits immed
Page 606 and 607:
c. Determine whether the transactio
Page 608 and 609:
keep the Chewco deal off the books.
Page 610 and 611:
improper accounting was corrected).
Page 612 and 613:
in order for the financial statemen
Page 614 and 615:
959. As detailed herein, Enron's di
Page 616 and 617:
connection with an SEC investigatio
Page 618 and 619:
eached by David Duncan and other ac
Page 620 and 621:
. Fails to correct an entity's fina
Page 622 and 623:
(j) The fourth standard of reportin
Page 624 and 625:
Professional Standards Group has fi
Page 626 and 627:
headquarters are located at 33 West
Page 628 and 629:
STATUTORY SAFE HARBOR 985. The stat
Page 630 and 631:
988. Plaintiffs' claims are typical
Page 632 and 633:
- 628 - Michael M. Lowther* Benjami
Page 634 and 635:
1000. This Claim is brought by the
Page 636 and 637:
Type of Offering Enron Corp. 7.875%
Page 638 and 639:
day of the offering. day of the off
Page 640 and 641:
liable as detailed herein. Defendan
Page 642 and 643:
08/17/00 Enron Credit Linked Notes
Page 644 and 645:
subdivisions thereof and/or State P
Page 646 and 647:
JP Morgan and Lehman Brothers had a
Page 648 and 649:
1016.26 This Claim is brought pursu
Page 650 and 651:
Plaintiffs hereby demand a trial by
Page 652 and 653:
SHAPIRO HABER & URMY LLP THOMAS G.
show all

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

You also want an ePaper? Increase the reach of your titles

Delete template?

Save as template?