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

to Enron on this transaction. For its part, Bankers Trust was to "earn" $15 million in fees, starting
in 9/99 and lasting through 12/1/02 (coincidently mirroring the end of the Class Period).
797.21 Project Cochise was a variation of the earlier tax scheme, Project Steele. Like Steele,
Cochise also involved the transfer of REMIC (i.e., mortgage-backed securities) and other assets from
Bankers Trust to an Enron affiliate, whereby both Enron and Bankers Trust sheltered taxable income
with the tax deductions resulting from the losses suffered by these mortgage backed securities.
797.22 Through this deceptive device, Enron and Bankers Trust artificially inflated Enron's
financial statement earnings by $101 million during the period 99-01. In response to questions posed
by Congressional investigators, Enron has admitted it recorded financial statement benefits from
Project Cochise of $27.7 million in 99, $50.3 million in 00 and $23.2 million in 01.
797.23 There is no doubt that both Bankers Trust and Enron were acting to artificially inflate
Enron's reported financial results, and in violation of tax code requirement that transactions have a
legitimate business purpose other than tax savings. Indeed, the tax opinion prepared by McKee
Nelson Ernst & Young LLP states that the "'most important purposes of members of the Enron
Affiliated Group for participating in [the Cochise Transaction]'" included "'increas[ing] the pre-tax
financial accounting income and the net earnings on the Enron consolidated financial statements as
a result of the Transactions.'"
Project Tomas
797.24 On 9/15/98, Bankers Trust signed an engagement letter agreeing to be Enron's
exclusive financial advisor for Project Tomas, by which Enron (through an affiliate) and Bankers
Trust agreed to enter into a partnership. The letter established that Bankers Trust would be paid $10
million in fees, plus additional amounts for certain services not included in the $10 million base.
In the end, Bankers Trust was paid $11.875 million for its primary role in this fraudulent transaction.
- 537 -