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

equired to pay Enron on the "hedge" the Enron stock would be the source of payment. In 99,
Enron recognized millions of dollars of income from the Rhythms' "hedging" transactions.
Other "hedging" transactions occurred in 00 and 01 and involved SPEs known as the "Raptor"
vehicles. These were also structures, funded principally with Enron's own stock, that were
intended to "hedge" against declines in the value of certain of Enron's merchant investments.
These transactions were not economic hedges. They actually were manipulative devices devised
to circumvent accounting rules. The economic reality was that Enron never escaped the risk of
loss, because it had provided the bulk of the capital with which the SPEs would pay Enron.
Vinson & Elkins engaged and participated in these contrivances and manipulative devices to help
inflate Enron's reported financial results.
817. In 11/99, Enron purchased certificates issued by a trust affiliated with Enron called
"Yosemite." However, the only way defendants could avoid disclosing Enron's holdings in Yosemite
was to reduce Enron's interest in Yosemite to less than 10% by year end 99. Because no bona fide
purchaser would buy Enron's interest in Yosemite, Vinson & Elkins worked with Fastow to concoct
a series of transactions designed to make it appear – at least for the last week between 12/25/99 and
1/2/00 – that the Yosemite Certificates were not owned by Enron but rather by a "third party," LJM2.
In fact, LJM2 "owned" the Yosemite Certificates it bought from Enron for a single day, immediately
reselling the Yosemite Certificates to another SPE, Condor. The Yosemite transaction created and
structured by Fastow, Vinson & Elkins and others was a sham. In fact, the legal documents
approved by Vinson & Elkins had been clearly and deliberately back-dated during 2/00 in order to
justify the continued concealment from Enron's shareholders of the existence of the fraudulent
scheme complained of herein.
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