11. Details of Fastow’s return from his Sept. 16 presentation to Merrill Lynch.
12. A transcript of Fastow’s presentations, and copies of his PowerPoint presentations, were obtained or reviewed by the author.
13. A copy of Jimmy Lee’s handwritten notes, scribbled on the cover sheet of the LJM2 presentation, was obtained by the author.
14. Details of the efforts by Chase to review the LJM2 investment from a series of internal e-mails, memos, and notes compiled at the time that the deal was considered. These include unsigned, handwritten notes from a Sept. 27, 1999, discussion with Arnie Chavkin; handwritten notes labeled “Follow-up on Arnie Chavkin’s questions” that were taken by the same individual from a conversation with Fastow on the same day; handwritten notes from a Sept. 16, 1999, presentation to Chase by Fastow about LJM2; and an Oct. 25, 1999, memo written by Todd Maclin and Rick Walker to Bill Harrison, Jimmy Lee, and seven other bank executives which was headed “Andy Fastow/Enron Corp.—$10 MM Request for Equity Investment.”
15. A copy of the questions sent to Fastow from Merrill Lynch was obtained by the author.
16. Quotes from Banham, “Andrew S. Fastow—Enron Corp.”
17. Some details of the Tilney, Furst, and Skilling conversation from an Oct. 12, 1999, memo written by Furst for the LJM due-diligence file, which summarized the conversation.
18. A copy of the agenda and the briefing materials for the Oct. 12, 1999, board meeting was obtained by the author.
19. Some details of the Oct. 12 finance committee meeting from the official minutes. Others from handwritten notes taken by the corporate secretary. Also see “Chief Financial Officer’s Report,” the presentation made by Fastow at the meeting. Also see the 1999 private-placement memorandum for “LJM Co-investment L.P.”; the Dec. 15, 1999, document “LJM2 Co-investment LP Supplement Number One to Private Placement Memorandum”; the draft internal LJM talking points, e-mailed by Fastow to Scott Sefton on Nov. 10, 1999; and “LJM2 Co-investment L.P. Amended and Restated Limited Partnership Agreement,” Dec. 20, 1999. Also see the Dec. 31, 1999, memo to the files written by David Duncan and other members of the Andersen team, “LJMII Partnership Structure”; and the Oct. 4, 1999, memo from Bob Baird to Scott Sefton and others, headed “LJM2.”
20. Some details of the board meeting from the official minutes.
21. McMahon testified about his discovery of potential conflicts among the banks at hearings before the House Energy and Commerce Committee’s Subcommittee on Oversight and Investigations on Feb. 7, 2002. He also discussed certain specifics from the same encounters in his Jan. 21, 2002, interview with Wilmer, Cutler, which are reflected in the notes of that session.
22. Weather conditions in Scottsdale from records on file with the National Climatic Data Center, from the Scottsdale Municipal Airport station.
23. Some details of the discussions regarding Enron Communications from a presentation package from the meeting, “Enron Communications,” as well as information provided to the Enron board on Nov. 18, 1999.
24. Some details from the final press release, “Azurix Corp. Reports Third Quarter 1999 Net Income of $18.8 Million and $.16 per Share and Discusses Financial Outlook,” Nov. 4, 1999.
25. Dialogue from the Nov. 4 broadcast on CNN from a transcript. The performance for Azurix shares from the company’s officially reported stock prices.
26. Some details of the Astros’ “fashion show” from “Astros Will Wear New Look in New Stadium Next Year,” Fort Worth Star-Telegram, Nov. 5, 1999, Sports, 3.
27. A copy of the international presentation was reviewed by the author.
28. Merrill’s emphasis on EBITDA is reflected in its June 14, 1999, presentation to Azurix, “Regarding North American Strategic Alternatives.”
29. Details of the Nov. 18 board meeting from the official minutes, unofficial handwritten notes taken by the corporate secretary, and a copy of Skilling’s presentation.
CHAPTER 11
1. Some details of the 1999 management conference from the official agenda for the meeting. Details on Milken’s background from James B. Stewart, Den of Thieves (Simon & Schuster, 1991).
2. Fastow’s travels in Europe are revealed in his official itinerary for the week of Nov. 7, 1999.
3. Details of the Bermingham e-mail from the original document, Dec. 1, 1999.
4. Information about the Mandanas report from the original Dec. 8, 1999, document, sent from Mandanas to Chuck Ward, the co-head of investment banking, and other senior CSFB bankers. Mandanas’s estimates were in fact understating the magnitude of Fastow’s returns, according to his tax records. Two Schedule K-1s for Fastow, for 1999 and 2000, show that he earned $14.4 million and $17.7 million directly from LJM1. This did not include payments under the Southampton scheme or other payments he received from the fund.
5. Some details of McMahon’s run-in with bankers from Feb. 7, 2002, testimony before the House Energy and Commerce Committee’s Subcommittee on Oversight and Investigations, as well as notes by subcommittee staffers from their Jan. 17, 2002, interview with Rick Buy. Also see the notes from McMahon’s Jan. 21, 2002, interview with Wilmer, Cutler.
6. Dialogue from a transcript of the session. Additional details from McLean and Elkind, Smartest Guys in the Room, 241–42.
7. The array of pockets at Enron is laid out in a May 2000 Enron document entitled “Global Finance: Funding Vehicles.” Background on the Condor deal from the Batson Report, vol. 2, app. J, annex 5. Details on Whitewing from the May 15, 2000, document “Whitewing Liquidity.” Also see the Batson Report, vol. 2, app. G.
8. Details of the Ephross e-mail from the original document.
9. Walker’s statements from an official transcript from the event. A copy of the Dec. 9 Andersen e-mail was obtained by the author.
10. Some details of the Dec. 13 finance committee meeting from the official minutes, as well as handwritten notes taken by the corporate secretary and McMahon’s presentation, “Enron Corp. Treasurer Report, December 13, 1999.” Also see “Enron Corp. Projects and Amendments, December 13, 1999,” “Supplement for December 13, 1999, Finance Committee Meeting,” and “Enron Corp. Chief Financial Officer’s Report, December 13, 1999.” At least one director, Robert Belfer, described his discomfort with what he was hearing in testimony to the bankruptcy examiner, as revealed in the Batson Report, vol. 4, app. D, 126. Also see the Batson Report, vol. 4, app. D, 139.
11. Some details of the board dinner from the official agenda for Dec. 13, 1999, and from an unsigned document, “Board Dinner, Monday, December 13, 1999.”
12. Bass described his discussion with Duncan in an e-mail to John Stewart, Dec. 18, 1999.
13. Details of the early days of the Raptor hedge from Skilling’s Dec. 4, 2001, testimony before the SEC; the notes from Wilmer, Cutler’s Jan. 9, 2002, interview with Wes Colwell; and Causey’s Wilmer, Cutler interview on Dec. 21, 2001.
14. Some details of Lay’s visit with Murdoch from entries in his personal schedule.
15. A copy of the Collins e-mail was obtained by the author. Also see Kurt Eichenwald and John Markoff, “Deception, or Just Disarray, at Enron,” New York Times, June 8, 2003, sec. 3, 1.
16. Some details of the Brown and McMahon episode and McMahon’s subsequent tussle with Fastow from McMahon’s Feb. 7, 2002, congressional testimony and notes from his Jan. 21, 2002, interview with Wilmer, Cutler. Also see the Wilmer, Cutler notes from the interviews with Brown on Dec. 5, 2001, and Jan. 5, 2002.
17. The aggregate effects of the final weeks of 1999 are described in the Batson Report, vol. 3, 13. Also see “LJM2 Year-End 1999 Transactions,” Jan. 5, 2000. Some details on the Polish power-plant deal from the Dec. 17, 1999, document “LJM Approval Sheet,” with “Deal Name: Nowa Sarzyna.” Also see the Powers Report, 140, and the Batson Report, vol. 2, appendix L, annex 4, 20–21.
18. Kopper described the details of his meeting with Fastow about the possibility of LJM2 investing in the Nigerian barges, and his subsequent
determination of the related problems, in his testimony of Sept. 27, 2004 in U.S. v. Bayly et al.
19. Some details of McMahon’s call on the Nigerian barges from the Dec. 22, 199n9, memo by James Brown of Merrill to the firm’s debt markets commitment committee. Also see the Dec. 21, 1999, fax, including the handwritten comments on the cover sheet, from Robert Furst of Merrill to Brown, which included an offering memo, “Preferred Stock Representing a Set Duration 90% Economic Interest in Enron Nigeria Barge Ltd,” and an internal report of Nov. 30, 1999, “Nigeria Barge Project, Capital Pricing Analysis.” Also see Dan Bayly’s testimony before the SEC of July 10, 2002; the Dec. 17, 1999, document, “Nigeria Barge Project Sell Down Transaction and Shareholder Structure”; and “Apachi Transaction Approval Sheet: Nigerian Selldown Executive Summary,” Dec. 29, 1999; and the testimony of Ben Glisan Jr. on Oct. 6 and Oct. 7, 2004, in the case U.S. v. Bayly et al. Finally, also see “Enron Risk Assessment and Control Deal Approval Sheet” for the deal entitled “Nigeria Barges,” from Oct. 21, 1999.
20. That Merrill understood the purpose of the electricity trade is clear from a May 30, 2000, e-mail from Schuyler Tilney of the firm to Dan Gordon and Robert Furst from the firm. Some details from “Confidentiality Agreement Between Enron North America Corp. and Merrill Lynch Capital Markets,” Dec. 8, 1999. Also see Gordon’s Dec. 28, 1999, e-mail to Christine Gonzalez and other Merrill employees and executives, which discussed the transaction. Other details from the Batson Report, vol. 3, app. I, 37–44. Some details about Enron’s electricity-trading effort from Ted Jackson, “End Run,” Financial World, Dec. 16, 1996.
21. Some details of this portion of the Yosemite transaction from the Wilmer, Cutler notes from the Jan. 16, 2002, Astin interview, and the Jan. 25, 2002, Brown interview. Also see the Powers Report, 142. Also see the LJM Approval Sheet for the Yosemite deal, dated Feb. 8, 2000.
22. Some details of Brown’s reaction and the meetings at Merrill from his Sept. 25, 2002, testimony before the United States Grand Jury in the Southern District of Texas, Houston division. Bayly described portions of this meeting in his July 10, 2002, testimony before the SEC. See also the Dec. 21, 1999, e-mail from Marianne Bonici to Vincent DiMassimo and Paul Wood, all from Merrill; the Dec. 29, 1999, loan agreement between Enron Nigeria Power Holding Ltd. and Ebarge, LLC; and the Batson Report, vol. 3, app. I, 26–29.
23. Some details of the Sun visit from entries in Skilling’s and Lay’s schedules. Also see “Itinerary: Cupertino, CA, December 22, 1999,” which was assembled for Lay. Some details about the presentation derived from the 1999 document “Enron Communications,” which provides a detailed description of the BOS. One participant in these discussions said that this document was used in this presentation, but that could not be confirmed.
24. Fastow’s thoughts during the call from undated excerpts of the 302 from the FBI’s interview of him following his decision to plead guilty and cooperate. Also see the Batson Report, vol. 3, app. I, 28.
25. Some details from notes from McMahon’s Jan. 21, 2002, interview with Wilmer, Cutler. Also see the Wilmer, Cutler notes from interviews with Brown on Dec. 5, 2001, and Jan. 5, 2002. Details about the Yosemite transaction from the Powers Report, 142. Also see the undated memo from Brown to McMahon “Re: 1999 Accomplishments”; see the LJM Approval Sheet for the Yosemite deal, dated Feb. 8, 2000; the Feb. 27, 2000, memorandum from Vinson & Elkins to three financial institutions, entitled “Yosemite Securities Company Ltd”; and the Feb. 23, 2000, interoffice memo from Dave Gorte to Rick Buy headed “LJM2 Investment in Certificates of Beneficial Interest in Yosemite Securities Trust.” After this, according to notes of Gorte’s Jan. 4, 2002, interview with Wilmer, Cutler, Buy told him to no longer write such memos and just initial the LJM approval sheet.
26. Details of the MEGS deal from the Powers Report, 141. Also see “Enron Risk Assessment and Control Summary Approval Sheet” with “Deal Name: Project Pluto, Dec. 29, 1999. Also see the Batson Report, vol. 2, app. L, annex 4, 30.
27. Details of Project Nahanni from the Dec. 17, 1999, document “Marengo L.P. Amended and Restated Limited Partnership Agreement Among Marengo, Yellowknife Investors, Enron Corp., and Nahanni Investors L.L.C.”; the Dec. 14, 1999, “Execution Approval Memorandum to GCS Commitment Committee” at Citibank; the internal Enron document prepared in Oct. 2001 “Nahanni Financing Presentation”; and Enron’s annual report (10-K) for the year ended Dec. 31, 1999, which disclosed that the company had redefined “merchant investments” to include government securities. Also see the Batson Report, vol. 4, app. C, 66–72; vol. 4, app. B, 142; and vol. 2, app. I, annex 3. Also see the undated memo from Brown to McMahon “Re: 1999 Accomplishments.”
28. Some details of the Yosemite transaction from the Powers Report, 142. Also see the LJM Approval Sheet for the Yosemite deal, dated Feb. 8, 2000; the Feb. 27, 2000, memorandum from Vinson & Elkins to three financial institutions, entitled “Yosemite Securities Company Ltd.”; and the Feb. 23, 2000, interoffice memo from Dave Gorte to Rick Buy headed “LJM2 Investment In Certificates of Beneficial Interest in Yosemite Securities Trust”; and the Batson Report, vol. 2, app. L, annex 4, 32.
29. Some details from a Dec. 29, 1999, e-mail and attachment from Dan Gordon to Jeff Kronthal and Christine Gonzalez, all of Merrill. The attachment was titled “Handout for STRC Meeting.” Some additional information from the Batson Report, vol. 3, app. I, 39–41.
30. A copy of Causey’s letter, addressed to Merrill Lynch Capital Services, was obtained by the author.
31. Enron announced its fourth-quarter and annual profits on Jan. 18, 2000, in a release entitled “Enron Continued Strong Earnings Growth.” Also see Michael Davis, “Enron’s Earnings Skyrocket 29 Percent in Fourth Quarter,” Houston Chronicle, Jan. 19, 2000, Business, 1.
32. Details of Glisan’s conversations with McMahon from Glisan’s testimony on Oct. 6 and 7, 2004, in U.S. v. Bayly et al.
33. Some details of the Scottsdale meeting from the official agenda and packets of materials distributed to executives, including a copy of Rice’s “Enron Communications” presentation.
34. Some background on Grayhawk Golf Club from John Davis, “Scottsdale Revels in Status as Elite Golf Paradise,” Arizona Republic, April 7, 2003, 1C. The role of the golf game was first revealed by Kurt Eichenwald, “U.S. Inquiry Tracks Insiders at Enron,” New York Times, April 15, 2002, A1. Some details of the Grayhawk scheme from United States of America v. Jeffrey K. Skilling and Richard A. Causey, case no. CR-H-04-25, filed in Houston’s Federal District Court on Feb. 18, 2004.
35. Some details of the analysts’ conference from a copy of the packet materials distributed to the analysts, including the document entitled “Enron 2000 Analyst Conference, January 19–20, Houston, Texas.” The dialogue from the meeting, and visual descriptions, come from a transcript of the event and a video taken on Jan. 20, 2000. Also see the press release from Sun Microsystems and Enron on that day entitled “Enron and Sun Microsystems Inc. Team to Accelerate Adoption of Broadband Internet Services.”
36. Enron’s stock performance from “Thursday’s Most Active Stocks,” Associated Press, Jan. 20, 2000.
37. The Grayhawk profits from U.S. v. Skilling et al.
CHAPTER 12
1. Once again, for chapter clarity, the presentation of unrelated events has been shifted a little. The last chapter ended shortly after the analyst’s conference of Jan. 20; the Kaminski meeting in fact took place two days earlier, on Jan. 18. However, this allowed for the full circle of one story—the Sun Microsystems and Project Grayhawk tale—to be told before launching the next story of the spreading recognition of Enron’s risk. Some details of Kaminski’s presentation from the document he prepared that weekend, “Discussion Notes for RAC Research,” Jan. 16, 2000.
2. Details of the efforts to develop the Raptor program and its ultimate structure from the Wilmer, Cutler notes from interviews with Kevin Jordan on Jan. 11 and 15, 2002; Ryan Siurek on Dec. 11, 2001, and Jan. 31, 2002; and Wes Colwe
ll on Jan. 9, 2002; as well as the original March 28, 2000, memo to file written by Duncan and other members of the Enron engagement team, “Raptor Transaction.” Also see the Powers Report, 97–128; the Feb. 2, 2000, performance review for Glisan written by Kopper; the March 31, 2000, Enron document “Project Raptor; Fairness Analysis”; the April 2000 memo to the files by Siurek and Jordan “Project Raptor”; the Aug. 3, 2000, document “Raptor I Derivative Proposal Sheet”; and the 302 of the FBI’s interview with Debra Cash of Andersen on Feb. 21 and 22, 2002.
3. Astin’s discomfort with the Raptor payment to LJM2 is confirmed in the Batson Report, vol. 4, app. C, 141–42, and the handwritten Vinson & Elkins notes of the Aug. 23, 2001, interview with Astin during the Watkins investigation. Also see the March 2000 memo from Causey to Mary Perkins, “Project Raptor,” which seeks payment of the forty-one million dollars.
4. Some details of the efforts to unwind Chewco from the Wilmer, Cutler notes of the Dec. 5, 2001, interview with Brown, as well as the Jan. 21, 2002, interview with McMahon. Also see the undated handwritten notes by Kopper to Fastow, providing his analysis of the value of Chewco.
5. Some details of Bermingham’s efforts from his e-mail to Darby on Jan. 29, 2000. Also see the affidavit of C. Jeanne Simpson, an FBI special agent, filed on June 27, 2002, in support of the criminal complaint against Mulgrew, Darby, and Bermingham.
6. Some details of the Andersen meeting from Bass’s Feb. 4, 2000, e-mail to Stewart, and Stewart’s response of the same day.
7. Some details of the Azurix board meeting from the original minutes. Details of the water2water strategy from Rebecca Smith, “Azurix Is Launching Online Exchange for Buying and Selling Water in West,” Wall Street Journal, Feb. 9, 2000, A4; “Azurix Launching Website for Liquid Assets Trading,” Houston Chronicle, Feb. 10, 2000, Business, 2; and an Azurix release of Feb. 28, 2000, “Azurix Corp. Expands Water2Water.com to Become First Internet-Based Vertical Marketplace in the Water and Wastewater Industry.”
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