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

• Significant related-party transactions with LJM, including the materiality of such
amounts to Enron's income statement and the amount retained "off balance sheet";
• Fastow's conflicts of interest in his capacity as CFO and the LJM fund manager;
• The amount that Fastow received for his services and participation in LJM;
• The disclosures of transactions in the financial footnotes;
• Enron's mark-to-market earnings and the fact that it was "intelligent gambling";
• Enron's reliance on its current credit rating to maintain solvency; and
• Enron's aggressive transaction structuring.
931. Despite Andersen's knowledge of these "red flags" regarding improper accounting,
given the lucrative nature of the Enron engagement, Andersen decided to continue to keep Enron as
a client, and, a few weeks later, issued a "clean" audit opinion on Enron's 00 financial statements.
932. On 3/4/01, just prior to being removed by Andersen management as the PSG advisor
to the Enron audit team, Bass sent yet another e-mail to Stewart venting his opposition to Enron's
accounting for the Blockbuster and Raptor transactions, that together represented at least $150
million in improperly recognized income or avoided losses at year-end 00.
933. On 8/20/01, former Andersen accountant and current Enron Vice President Sherron
Watkins made a phone call to an Andersen audit partner, James A. Hecker, and warned him about
a series of improper accounting practices that had been ongoing at Enron. On 8/21, Hecker called
an emergency meeting with other Andersen partners, including Duncan, Swanson, Cash and Odom,
to discuss Watkins' questions and concerns about "the propriety of accounting for certain related-
party transactions" with LJM. Indeed, Watkins' concerns were very similar to Andersen's concerns
back in 2/01 – albeit ignored and dismissed by Andersen in light of the $100 million potential fee
level, and the very issues that caused Enron's collapse. For example:
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