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

705. In addition to its own direct liability for making false and misleading statements, CS
First Boston also participated in and furthered the fraudulent scheme by helping to finance or
otherwise participate in illicit transactions with Enron which it knew would contribute materially to
Enron's ability to continue to falsify its financial condition and thus continue the operation of the
Enron Ponzi scheme.
706. CS First Boston, like JP Morgan and CitiGroup, made disguised loans to Enron so
that Enron's true credit situation, liquidity and debt levels could be disguised. CS First Boston lent
Enron money using trades in derivatives. In 00, CS First Boston gave Enron $150 million to be
repaid over two years. Enron's payments would vary with the price of oil. Technically, the
transaction was a swap. But because CS First Boston paid Enron up front, the transaction was in fact
a loan – a reality admitted by CS First Boston. "It was like a floating-rate loan," said Pen
Pendleton, a CS First Boston spokesman. "We booked the transaction as a loan." Enron's
balance sheet misrepresented this transaction. Enron posted the banks' loans as "assets from price
risk management" and as "accounts receivable," admitted Charlie Leonard, a spokesman for
Andersen: The repayments that Enron owed the banks were listed as "liabilities from price risk
management" and possibly a small amount as accounts payable, Leonard said.
707. CS First Boston also knowingly engaged and participated in and, in furtherance of
the scheme, helped Enron by creating some of the illicit SPEs which were the primary vehicles by
which Enron falsified its financial condition and misrepresented profits. This was done by a group
of 10 bankers from CS First Boston who had joined CS First Boston from Donaldson Lufkin &
Jenrette in 98, led by Laurence Nath. Using the euphemism "structured products," Nath and his team
structured numerous illicit SPEs to engage in transactions with Enron to improperly boost Enron's
reported profits while moving billions of dollars of debt off Enron's balance sheet to the SPEs.
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