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

One can only surmise that the removal of Jeff Skilling was an action taken
by the board to correct the wrongdoings of the various management teams at
Enron ... (i.e., EES's management's ... hiding losses/SEC violations).
* * *
... [I]t became obvious that EES had been doing deals for 2 years and was
losing money on almost all the deals they had booked.
... [I]t will add up to over $500MM that EES is losing and trying to hide in
Wholesale. Rumor on the 7th floor is that it is closer to $1 Billion.... [T]hey
decided ... to hide the $500MM in losses that EES was experiencing.... EES has
knowingly misrepresented EES['s] earnings. This is common knowledge among
all the EES employees, and is actually joked about. But it should be taken
seriously.
F. Enron Broadband ("EBS")
Another purported growth area of Enron's business was its broadband services business –
EBS – which consisted of constructing an 18,000-mile fiber optic network which Enron was
supposedly successfully building out and engaging in trading access to Enron's and others' fiber optic
cable capability, i.e., "Broadband Intermediation." Enron and its banks presented both parts of
Enron's broadband business as poised to achieve and later as actually achieving huge success,
reporting that its fiber optic network was being or had been successfully constructed, was state of
the art and provided unparalleled quality of service, and that its broadband trading business was
succeeding and achieving much higher trading volume and revenues than expected, i.e., "exponential
growth." 39.
A prime example of the purported success of Enron's broadband content business was its
VOD joint venture with Blockbuster, announced in 7/00. Enron presented this 20-year agreement
as having a billion dollar value, that it was a first-of-its-kind product whereby consumers would
obtain VOD content from Blockbuster in their home as if they were watching the movie on their own
VCR (start, stop, rewind) and that this incredible advance in technology was made possible due to
the high quality of Enron's fiber optic network. Abusing mark-to-market accounting, Enron
recognized an astonishing $110+ million profit on this deal in the 4thQ 99 and 1stQ 00, even though
the project failed in its test markets because Enron did not have the technology to deliver the product
as represented – and which could never have gone forward because Blockbuster did not have the
legal right to deliver movies in digital format, the only format which could be utilized for VOD. 40.
- 19 -