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

investors to utilize to pay down Enron's short-term commercial paper and bank debt, again to keep
the Enron Ponzi scheme in operation, and the banks also played an indispensable role in helping to
inflate and support Enron's stock price by issuing research reports which contained false and
misleading information about Enron's business, finances and future prospects. Secret or disguised
transactions by JP Morgan, CitiGroup and CS First Boston also concealed billions of dollars of loans
to Enron. The banks and/or their top executives were rewarded by allowing the banks or certain top
executives of the banks to invest in the LJM2 partnership, which they knew would be very lucrative
as it was going to engage in self-dealing with Enron.
71. On 2/19/02, The New York Times reported:
Citigroup ... structured some of the deals to remove poorly performing assets from
Enron's balance sheet.... Dozens of Wall Street firms were involved in financing
Enron's rapid rise, selling its stock and bonds, arranging acquisitions, and, later,
putting together the off-the-book deals that masked Enron's true financial condition.
In doing so, these firms earned tens of millions of dollars in fees and put billions of
dollars of Enron securities into the market.
They helped Enron on the way up and on the way down. As Enron's
downward spiral began, Wall Street firms – among them CS First Boston, Citigroup
and Deutsche Banc Alex. Brown – helped finance Enron's side partnerships that
removed lagging assets from the company's balance sheet. In these deals, the banks
arranged partnerships that allowed Enron to appear more profitable than it actually
was and then sold several billions of dollars in bonds backed by Enron stock.
In other cases, dozens of banks and brokerage firms were approached about
investing in Enron side partnerships and were shown confidential documents
disclosing the extent of Enron's off-balance-sheet deals. Yet this information was
considered confidential and not shared with Enron shareholders or clients of these
Wall Street firms.
One of these firms was Merrill Lynch, the nation's largest retail broker,
which was the underwriter of a partnership called LJM2, Other LJM2 investors
– all of whom had more information about Enron's finances than Enron shareholders
– were Citigroup; Travelers Insurance, a Citigroup unit; an investment group
affiliated with Morgan Stanley Dean Witter; and a group of Merrill Lynch
executives.
- 57 -