Plaintiffs' Memorandum of Law in Opposition to Motions to Dismiss ...

outside the boundaries of generally accepted business ethics – were active and knowing participants
in the scheme to transfer wealth to bankers and insiders to the detriment of the shareholders of
Enron. 646.
It was indispensable to the scheme that LJM2 be funded by year-end 99 to serve as a vehicle
to consummate several transactions with Enron before year-end 99 to create huge profits for Enron
in the 4thQ 99 so that Enron could meet and exceed its forecasted 99 earnings. 26. However, as
had been the case with Chewco at year-end 97, there was tremendous time pressure and Enron could
not complete the formation of LJM2 and raise money from the equity investors in LJM2 in time to
actually form or fully fund LJM2 by year-end 99 with sufficient capital to enable it to do the
desperately needed transactions with Enron. So, in an extraordinary step, on 12/22/99, the Board
was aware that Enron's bankers put up money to pre-fund LJM2 in 12/99, enabling Enron to do the
99 year-end deals with LJM2 and its SPEs that were indispensable to Enron avoiding reporting a
very bad 4thQ 99, which would have caused its stock to plunge. These deals included collateralized
loan obligations, Nowa Sarzyna (the Poland Power Plant), MEGS (a natural gas system in the Gulf
of Mexico), and Yosemite, all described in detail in the CC. 28.
From 6/99 through 6/01, the Board had actual knowledge that Enron entered into numerous
non-arm's-length transactions with the LJM partnerships. Enron sold assets to LJM that it wanted
to get off its books on terms that no independent third party would ever have agreed to. The
transactions between the LJM partnerships and Enron or its affiliates occurred close to the end of
financial-reporting periods to artificially boost reported results to meet forecasts Enron and other
participants in the scheme had been making. For instance, near the end of the 3rdQ and 4thQ 99,
Enron sold interests in seven assets to LJM and LJM2, which permitted Enron to conceal its true
debt levels by removing the assets from its balance sheet and, at the same time, record large gains.
As it had agreed to do in advance, Enron bought back five of the seven assets after the close of the
financial reporting period, and the LJM partnerships made large profits on every transaction, even
when the asset they had purchased actually declined in market value, and those transactions
generated purported earnings for Enron of $229 million in the second half of 99 out of total earnings
for that period of $549 million. In three of these transactions where Enron ultimately bought back
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