Plaintiffs' Memorandum of Law in Opposition to Motions to Dismiss ...
Plaintiffs' Memorandum of Law in Opposition to Motions to Dismiss ...
Plaintiffs' Memorandum of Law in Opposition to Motions to Dismiss ...
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million <strong>in</strong> phony pr<strong>of</strong>its for Enron and allow<strong>in</strong>g Enron <strong>to</strong> conceal millions <strong>of</strong> dollars <strong>of</strong> debt.<br />
Between 98 and 01, Enron, and other <strong>of</strong> its bankers, would create other controlled partnerships and<br />
entities and use them <strong>to</strong> generate hundreds <strong>of</strong> millions <strong>of</strong> dollars <strong>of</strong> phony pr<strong>of</strong>its while conceal<strong>in</strong>g<br />
billions <strong>of</strong> dollars <strong>of</strong> Enron debt. 11.<br />
B. The 97-00 Successes – Enron's S<strong>to</strong>ck Soars<br />
As Enron reported better-than-expected year-end 97 f<strong>in</strong>ancial results, its s<strong>to</strong>ck moved higher.<br />
Dur<strong>in</strong>g 98 through mid-01, Enron appeared <strong>to</strong> evolve <strong>in</strong><strong>to</strong> an enormously pr<strong>of</strong>itable high-growth<br />
enterprise, reach<strong>in</strong>g annual revenues <strong>of</strong> $100 billion by 00, with annual pr<strong>of</strong>its <strong>of</strong> $1.2 billion,<br />
present<strong>in</strong>g a very strong balance sheet that entitled it <strong>to</strong> an <strong>in</strong>vestment grade credit rat<strong>in</strong>g. By 01,<br />
Enron had become the 7th largest U.S. corporation, was consistently report<strong>in</strong>g higher-than-forecasted<br />
earn<strong>in</strong>gs each quarter, and forecast<strong>in</strong>g cont<strong>in</strong>ued strong growth. 12-13.<br />
Enron ex<strong>to</strong>lled the success and earn<strong>in</strong>g power <strong>of</strong> its Wholesale Energy trad<strong>in</strong>g bus<strong>in</strong>ess<br />
("WEOS"), its retail Energy Services bus<strong>in</strong>ess ("EES"), and its Broadband Content Delivery and<br />
Access Trad<strong>in</strong>g, i.e., <strong>in</strong>termediation, bus<strong>in</strong>ess ("EBS"). 2. Throughout 98 and 99, as Enron<br />
reported record pr<strong>of</strong>its and a strong f<strong>in</strong>ancial position, Enron, <strong>in</strong> releases, reports and conversations<br />
with <strong>in</strong>ves<strong>to</strong>rs and analysts and Enron's banks, <strong>in</strong> analyst reports, stated (14(a)):<br />
• Enron's strong results were due <strong>to</strong> the success <strong>of</strong> all <strong>of</strong> its bus<strong>in</strong>ess l<strong>in</strong>es.<br />
• Enron had a lead<strong>in</strong>g position <strong>in</strong> each <strong>of</strong> its bus<strong>in</strong>esses. Enron had an extremely<br />
strong franchise position.<br />
• Wessex Water would be accretive <strong>to</strong> Enron's bus<strong>in</strong>ess now and a $20 billion bus<strong>in</strong>ess<br />
<strong>in</strong> five years. Azurix Corp. was becom<strong>in</strong>g a major global water company.<br />
• International projects would drive major earn<strong>in</strong>gs growth for Enron. The Dabhol,<br />
India power project would contribute <strong>to</strong> earn<strong>in</strong>gs <strong>in</strong> 99 and beyond.<br />
• WEOS's bus<strong>in</strong>ess rema<strong>in</strong>ed strong.<br />
• EES was exceed<strong>in</strong>g expectations for contracts and pr<strong>of</strong>itability. EES was add<strong>in</strong>g<br />
billions <strong>in</strong> new contracts and would be pr<strong>of</strong>itable by 4thQ 00.<br />
• Enron was optimistic about its broadband bus<strong>in</strong>ess. EBS was fir<strong>in</strong>g on track.<br />
• Enron's tremendous competitive advantages enabled it <strong>to</strong> achieve strong EPS growth.<br />
• Enron was very well managed and knew how <strong>to</strong> manage and mitigate risk. Enron had<br />
effectively used <strong>of</strong>f-balance sheet non-recourse f<strong>in</strong>anc<strong>in</strong>g. Enron had a strong<br />
balance sheet. Enron was a master <strong>of</strong> risk management.<br />
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