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

843. The above statements were false and misleading because the "share-settled options"
purchased by Enron were such that the transaction was based on a future material decrease in the
price of Enron's stock. Nor did the related-party disclosures drafted and approved by Vinson &
Elkins disclose that (1) Enron controlled the "entities" or "vehicles," and (2) the transactions were
structured such that LJM2 received its profits and capital up front in the transactions before any
hedging (i.e., before risk of loss), and Enron bore the ultimate risk of the investment, all of which
would have revealed Enron was not dealing with valid Special Purpose Entities and there was no
hedging occurring.
Merchant Assets and Investments Buybacks
844. Related-party disclosures which Vinson & Elkins drafted and approved concerning
Enron's merchant assets sales and purchases were false and misleading because they concealed facts
demonstrating Enron was playing a "shell game" with its merchant assets and investments. Enron
used this shell game to falsely inflate its net income in 99 over $130 million.
845. The related-party disclosures in Enron's Report on Form 10-K filed 3/30/00 state: "In
the fourth quarter of 1999, LJM2, which has the same general partner as LJM, acquired, directly or
indirectly, approximately $360 million of merchant assets and investments from Enron, on which
Enron recognized pre-tax gains of approximately $16 million." The related-party disclosures in
Enron's Report on Form 10-K filed 4/02/01 state: "In 1999, the Related Party acquired approximately
$371 million, merchant assets and investments and other assets from Enron. Enron recognized pre-
tax gains of approximately $16 million related to these transactions." And Enron's Proxy filed
3/27/01 states: "[D]uring 2000, LJM2 sold to Enron certain merchant investment interests for a total
consideration of approximately $76 million."
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