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

757. As detailed elsewhere, at year-end 97, Enron encountered a crisis when the investor
in the JEDI partnership, which Enron had been using to do transactions with to generate substantial
amounts of profits during 97, as well as move debt off its balance sheet, wanted Enron to arrange
to buy out its interest in the JEDI partnership. As this happened very late in 97, and because Enron
could not find a legitimate independent third-party investor to come into JEDI or buy out the other
investor's interest in JEDI, Enron, Andersen and Vinson & Elkins faced a crisis which, unless solved,
would result in Enron being forced to wipe out 40% of the profits it had earlier reported during 97
and put millions of dollars of debt back on its balance sheet with very adverse consequences.
758. So, with the help of Barclays, Enron's insiders quickly structured a new entity called
Chewco to buy out the other investor's interest in JEDI. This required that Chewco receive
significant bank financing and have independent equity investors which held 3% of Chewco.
Barclays agreed to loan $240 million to Chewco on unusually favorable terms, receiving not only
high interest rate payments but very significant commitment and lending fees, as well as a guarantee
of the loan by Enron. In addition, Barclays agreed to make available approximately $11.4 million
in what were called "equity loans" to the purported equity investors in Chewco. However, because
Barclays knew those equity investors were, in fact, straw persons controlled by Enron, who did not
have any real credit standing, Barclays demanded that Chewco provide a secret $6.6 million cash
deposit with Barclays to offset the so-called "equity loans" Barclays had made to those straw persons.
Thus, Barclays knew the structure of the Chewco partnership was a sham and that, in fact, it was
an entity with little or no outside equity in it, which it and Enron had formed for the purpose of
preventing a disastrous unwinding or restatement of Enron's previously reported 97 profits and
to create a secretly controlled entity that Enron could use going forward to do other non-arm's-
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