Posted on 01/29/2002 5:04:10 PM PST by umbra
Investors in Enron's off-balance sheet partnerships knew that the energy group was using the vehicles to enhance its earnings and maintain its credit rating.
The partnership are increasingly at the centre of regulatory and congressional scrutiny of Enron, which filed for bankruptcy in December after executives restated the company's figures and revealed the extent of debt held in off-balance sheet variables.
Congressional investigators have widening their inquiry into the role of Enron 's auditors, Andersen, to examine whether the firm offered improper advise on the private partnerships.
There are also increasing concerns that the off-balance sheet financing hid the perilous state of Enron's core business.
Leaked documents show that the conflicts inherent in the partnerships-some of which were managed by top Enron executives-were apparent to investors.
The Exec's or the enlightened Investors?
They didn't lose 61 BILLION dollars overnight; It took them MANY years.
By all rights they should have gone bankrupt during the Clinton years.
The offshore sites were just a smokescreen for shareholders.
They LOST money for the last several years,
so there has been NO TAX LIABILITY,
but they needed to PRETEND TO USE the offshore sites
as an explanation for why they weren't paying taxes!
"A private placement document issued by Merrill Lynch to potential investors in one such vehicle - LJM2 Co-Investment - in October 1999 made clear that Enron needed to move investments off its balance sheet to finance its rapid growth. Some details of the documents were reported earlier this month by Smartmoney.com, a financial website.
LJM2's limited partners include units of Citigroup, JP Morgan Chase and Deutsche Bank as well as state pension funds and private investors, including a vehicle for the family that controls the Chanel fashion group.
The partnership financing also included clauses that were triggered when Enron's share price fell sharply last year, accelerating the company's collapse.
Representative Billy Tauzin, who is chairing one of the most aggressive congressional investigations, sent a letter on Tuesday to Joseph Berardino, Andersen chief executive, asking the company whether it had performed consulting services to the LJM partnerships.
The partnerships were supposedly run as separate entities but LJM was managed until last July by Andrew Fastow, Enron's then-chief financial officer, and staffed by Enron employees in the group's Houston headquarters.
Andersen has been accused of conflict of interest in its dealings with Enron because it received $25m (E29m) for its audit work and an additional $27m for consulting. An investigation into Andersen's handling of LJM by Enron's outside law firm found the accounting firm had reviewed LJM's partnership agreement and its transactions with Enron.
The House energy and commerce committee, headed by Mr Tauzin, also continued to press Andersen on whether senior executives were involved in shredding of Enron-related documents. Andersen had originally maintained a massive shredding campaign was limited to its Enron audit team in Houston, but last week admitted others in the firm also destroyed documents.
Karen Denne, an Enron spokeswoman, said on Tuesday that the LJM partnerships were being reviewed by the special committee of the board. "When that is completed, all of this should be made clear," she said.
Separately, police looking into the death of Cliff Baxter, former Enron vice-chairman, said they would not release the contents of his suicide note without the permission of the Texas attorney-general."
Not sure what EXACTLY happened with Enron yet. Eough documents have been shredded that we may never really know. The attempt to quietly write off equity losses in excess of 1.2 billion in offshore accounts held by unnamed parties earlier this year does lend the scent of a criminal enterprise
We've all seen the Cow Illustration of how Capitalism differs from Communism, Facism, and Feudalism:
Under feudalism, you have two cows. Your lord takes some of the milk. Under fascism, you have two cows. The government seizes both, hires you to take care of them and sells you the milk. Under communism, you have two cows. You must take care of them, but the government owns all the milk. Under capitalism, you have two cows. You sell one and buy a bull. Your herd multiples; you sell out, invest the money and retire on the income.
The Cows, sensing the confusion of the American public, have helpfully put together an explanation of the Enron affair:
With Enron, you have two cows. You borrow 80% of the forward value of the two cows from your bank. Then you buy another cow with 5% down and the rest financed by the seller on a note, bearing interest at twice the prime, callable if the market cap of your publicly listed company, whose stock you've put up as collateral, goes below $20 billion. You sell the three cows to your publicly listed company, using letters of credit opened by your brother-in-law at a second bank, then execute a debt/equity swap with an associated unit, so that you get four cows back, plus a tax exemption for five cows.
To continue: The milk rights of six cows are transferred via an intermediary to a Cayman Islands firm secretly owned by the majority shareholder, who sells the rights to seven cows back to your listed company. The annual report trumpets that the company owns eight cows, with an option on one more. All of the above transactions are cheerfully blessed by your independent auditors, who, of course, served as consultants on said transactions, but only after the fact.
You're all set now to disclose, via press release and conference call with analysts, that Enron, a major owner of cows, will begin trading cows over the Web. Analysts proclaim Enron the prototypical New Economy company, bull the shares to the moon, enabling you to sell huge gobs of the stock and use part of the proceeds to buy a top-of-the-line shredding machine.
I hope this helps.
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