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

Enron would be required to issue millions of additional Enron shares, which would reduce Enron's
shareholders' equity by hundreds of millions, if not billions, of dollars, endanger its investment-grade
credit rating, likely cut off its access to the capital markets, and thus endanger the ongoing scheme
from which JP Morgan and its top partners were profiting.
664. In addition to its own direct liability for making false and misleading statements, JP
Morgan also engaged and participated in and furthered the fraudulent scheme by helping to finance
or otherwise participate in manipulative devices and illicit transactions with Enron which it knew
would contribute materially to Enron's ability to continue to falsify its financial condition. During
the Class Period, JP Morgan and Enron engaged in fraudulent transactions utilizing an entity which
JP Morgan secretly controlled, known as Mahonia Ltd., located in the Channel Islands between
England and France. These transactions, which involved over $5 billion, were structured to appear
as natural gas futures contracts, i.e., commodity trades, between Enron and the Mahonia entity,
which JP Morgan actively controlled. However, these transactions were contrivances. The parties
to those transactions never intended in fact to close out any of the natural gas futures contracts.
These transactions were, in reality, disguised loans from JP Morgan to Enron, a contrivance JP
Morgan created to get cash to Enron to boost its apparent liquidity while concealing over $3.9 billion
in debt that should have been reported on Enron's balance sheet.
665. JP Morgan knew these transactions were manipulative devices and contrivances and
that, given the true financial condition of Enron, there was a risk Enron would default and JP Morgan
would suffer a loss. Therefore, JP Morgan attempted to protect itself against such loss by insuring
the contracts. When Enron went bankrupt, JP Morgan attempted to collect on the insurance.
However, the insurance carriers that issued surety bonds covering the "commodities trades" between
JP Morgan-controlled entities and Enron have refused to pay JP Morgan's losses, asserting the trades
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