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

The key to the Enron mess is that the company was allowed to give
misleading financial information to the world for years. Those fictional figures,
showing nicely rising profits, enable Enron to become the nation's seventh largest
company, with $100 billion of annual revenues. Once accurate numbers started
coming out in October, thanks to pressure from stockholders, lenders and the
previously quiescent SEC, Enron was bankrupt in six weeks. The bottom line: we
have to change the rules to make companies deathly afraid of producing dishonest
numbers, and we have to make accountants mortally afraid of certifying them.
Anything else is window dressing.
Newsweek, 1/28/02.
70. As detailed herein, the scheme to defraud Enron investors was extraordinary in its
scope, duration and size. Billions of dollars in phony profits were reported. Billions of dollars of
debt was hidden. Enron's shareholders' equity was overstated by billions of dollars. This was
accomplished over a multi-year period through numerous manipulative devices and contrivances and
misrepresentations to investors in Enron releases and SEC filings, including Registration Statements
utilized to raise billions of dollars of new capital which was indispensable to keep Enron afloat. This
fraudulent scheme could not have been and was not perpetrated only by Enron and its insiders. It
was designed and/or perpetrated only via the active and knowing involvement of Enron's general
counsel, Vinson & Elkins, the law firm for the LJM2 entity and its SPEs, Enron's accounting firm,
Andersen, and Enron's banks, including JP Morgan, CitiGroup, CS First Boston, Merrill Lynch,
Deutsche Bank, Barclays, Lehman Brothers and Bank America. Each of these actors directly
violated the securities laws and played an important role in the fraudulent scheme and wrongful
course of business complained of:
(a) Andersen, Enron's purportedly independent public accounting firm, was never
independent of Enron but, in fact, economically dependent on what was the second largest client of
Andersen, providing Andersen with annual fees approximating $50 million, which Andersen
estimated internally could increase to $100 million per year. Andersen not only permitted Enron to
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