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

• How Enron could, with its own capital stock, repeatedly add to the collateral
underlying an obligation owed to Enron from a related party without recognizing it
in the financial statements.
• Enron stock contributions/issuances to LJM did not appear to be recorded on Enron's
books.
• Enron's financial statement disclosures related to the Fastow investment-company
relationships and transactions were (putting it kindly) hard to understand or
incomplete.
• The LJM equity had been distributed to its shareholders, including Fastow and CIBC,
concurrently, or shortly after, its original formation.
934. Watkins informed Hecker that "she was concerned enough about these issues that she
was going to discuss them with Ken Lay, Enron's Chairman, on Wednesday, 8/22/01."
G. Andersen Signed Off on Enron's Phony Broadband
Reporting and Mark-to-Market Accounting
935. Andersen was consulted on, and reviewed, many of Enron's manipulative transactions
involving broadband as described in 520-532. Andersen signed off on Enron's mark-to-market
accounting that the Company also used (and abused) for its broadband transactions.
936. The improper accounting for the Braveheart/Blockbuster transactions, for example,
was agreed to by Andersen. This egregious transaction, more fully described in 521-526, was
responsible for most of the profits Enron reported for broadband. Andersen actually signed off on
the phony recognition. As The New York Times noted on 1/30/02:
Enron asserted that there was a market in broadband, and that its transaction
amounted to one involving the transfer of financial assets. That meant it could report
the transaction on a mark-to-market basis, similar to the way it accounted for the
energy trades. It applied its undisclosed model to calculate how much revenue it
could report from the transaction, and reported more than $110 million. Former
executives say accountants at Arthur Andersen approved the accounting.
"Nobody in the division could comprehend how they got Andersen to sign off
on that," one former senior executive in the broadband division said. "It just didn't
make any sense. When we heard what they did, everybody's mouths just hung open.
We weren't doing business on any scale even close to those numbers."
- 598 -