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

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controversial electricity plant in India. Enron's debt was soaring. If these harsh truths became obvious to outsiders, Enron's stock price would get clobbered – and a rising stock price was the company's be-all and end-all. Worse, what few people knew was that Enron had engaged in billions of dollars of off-balance-sheet deals that would come back to haunt the company if its stock price fell. Newsweek, 1/21/02. The key to the Enron mess is that the company was allowed to give misleading financial information to the world for years. Those fictional figures, showing nicely rising profits, enable Enron to become the nation's seventh largest company, with $100 billion of annual revenues. Once accurate numbers started coming out in October, thanks to pressure from stockholders, lenders and the previously quiescent SEC, Enron was bankrupt in six weeks. The bottom line: we have to change the rules to make companies deathly afraid of producing dishonest numbers, and we have to make accountants mortally afraid of certifying them. Anything else is window dressing. Newsweek, 1/28/02. The rise and demise of Enron is graphically displayed below: - 29 -
100 90 80 Total Shares Sold By Defendants: 20,788,957 shares Defendants' Insider Trading Proceeds: $1,190,479,472 3/00 World leader. EBS network unbeatable scale and scope - off to tremendous start. EES exceeded goals. To double contract volume in 00 to $16 billion. Profitability expanding rapidly. 6/00 Enron sells $325 million 7.875% notes via Lehman. 5/00 Enron sells $175 million 8.375% notes via Bank America. 5/00 Broadband market larger than estimated. Will reach $100 billion in 03-04 with 3-4% margins. Monumental earnings potential. 1/00-3/00 Insiders sell 2,940,125 shares for $208+ million. Enron Timeline 7/31/98 - 3/7/02 9/00 EES growth remarkable. New contracts over $2 billion. Potential to double size of Co. Turned corner on profitability. Great collection of large contracts. Well managed. EIN buildout on schedule. Full VOD roll out in 01. 4/00-5/00 Insiders sell 3,552,044 shares for $266+ million. 7/00-9/00 Insiders sell 1,239,388 shares for 10/00 New Power IPO - 27.6 million shares @$21 via CS First Boston, JP Morgan Chase, CitiGroup. $108+ million. 10/00-12/00 Insiders sell 1,556,882 shares for $111+ million. 10/00 Strong 3Q 00 income. Merchant investments hedged. EES at breakout pace. VOD deal value $1 billion - going fine. All components in place. EBS designed to take advantage of broadband glut. 1/01-3/01 Insiders sell 1,136,548 shares for more than $82+ million. 1/01 Strong 4Q 00 results. Breakout performance. $16 billion in EES contracts. Outstanding year. Increasing profitability. WEOS has significant sustainable competitive advantage. Successfully launched VOD. Proven technology. Will increase profitability. Increases forecasted EPS growth. Stock worth $126. 2/01 Enron sells $1.9 billion 0% convertible notes. Enron Stock Issuance Price Trigger 3/01 Business in good shape. WEOS, EBS intermediation great. Very optimistic for VOD. Everything fine. EBS business predicated on surplus of supply - declining prices good for Enron. Balance sheet great. Financing vehicles have de minimus share issuance requirements. 3/01 Strong, unique business. Tremendous growth. Will continue strong Erns performance. EES had breakout year - proven concept with profitable dealflow. $30 billion in contracts in 01. EBS model working. Intermediation growing exponentially. VOD sucessful. Enron in top tier of world's corporations. 400 300 Dollars Per Share 70 60 50 40 30 20 10 12/98 High return Int'l projects - major Erns gains for years. Dabhol will contribute to Erns in 99. 11/98 Enron sells $250 million 6.95% notes via CS First Boston. 10/98 Strong 3Q income. Excellent progress on EES. Will move quickly to complete fiber optic network. 7/98 Strong 2Q income. EES continues to progress. Wessex will be accretive now and a $20 billion business w/i 5 years. 3/99 Enron becoming "BlueChip." Positioned for strong growth. Extremely strong franchise. Dabhol to be strong contributor to Erns. Azurix becoming major global water company. Mgmt effectively using off balance sheet non-recourse financing. 10/98-2/99 Insiders sell 2,253,958 shares for $67+ million. 1/99 Strong 98 income. Leading position in each business. Strong balance sheet. Well managed. EES successful - contracts worth $3.8 billion. WEOS strong. Very optimistic. 15% EPS growth. 3/99-4/99 Insiders sell 2,021,640 shares for $71+ million. 4/99 Strong 1Q 99 income - shows continued strength of business. EES added $1.7billion in contracts. EES profitable by 4Q. Well managed. Erns power building. 2/99 Enron sells 27.6 million shares @ $31.34 via CS First Boston, Lehman, Merrill Lynch, CitiGroup. 6/99 Azurix IPO. 38.5 million shares @$19 via Merrill Lynch, CS First Boston, DeutscheBank and Bank America. 6/99 No other Co. offers such impressive sustainable growth. Management team capable - knows how to mitigate risk. 5/99-7/99 Insiders sell 794,934 shares for $30+ million. 10/99 Strong 3Q 99 income. EES exceeds expectations. Optimistic about Broadband trading. EPS growth in excess of 15%. 8/99 Enron sells $225 million 7% notes, preferred stock via Bank America and CitiGroup. 9/99 WEOS strong. 15-20% Erns growth. EES signing high quality contracts. Strong Erns growth in coming years. 9/99-12/99 Insiders sell 972,588 shares for $39+ million. 7/99 Strong 2Q 99 income. Hitting on all cylinders. Master of risk management. EES well positioned for significant Erns in 00 and beyond. $200 billion of potential contracts. Outlook excellent. Erns to grow 15+% per year. 5/99 Well managed Co. Global powerhouse. Growth to exceed 17% per year. 5/99 Enron sells $500 million 7.375% notes via Lehman, Bank America and CIBC. Enron 4/00 Strong 1Q 00. Positive momentum. Trends sustainable. Will accelerate. Strong response to intermediation. Enron GE of New Economy. Peer Index 7/00 Enron/Blockbuster VOD deal: "Killer App." Unparalleled quality of service. 10/00 Strong 3Q 00 income. Very optimistic about the strong outlook. 1/00 Strong 99 income. Great year. Continued strong WEOS growth, breakout performance from EES and rapid development of EBS. EBS will drive growth - expected to accelerate. EES profitable. Momentum building. Monumental earnings potential. 11/99 Business excellent - strong growth prospects. Stock hurt by rumors. Enron right - future bright. Stock decline superb opportunity to buy top growth name. Enron did first bandwidth trade - "Day One" of a potentially huge Enron market. EPS growth - 15-20%. 7/00 Strong 2Q 00 income. Business booming - gaining momentum. EBS profits escalating. Ahead of expectations. VOD contract over $1 billion. New EES contracts - $3.8 billion. Never in better shape. Very excited about future. 11/00 Rumors of shortfall untrue. Businesses performing very well. Comfortable with $1.65 EPS for 01. 12/00 Strong growth to continue. Growth and strong Erns are reason to buy Enron. VOD launched. Unparalleled quality of service. Solid technical foundations. 3/01-4/01 Insiders sell 465,329 shares for $30+ million. 2/01 Fortune criticizes accounting. Enron says sour grapes by analysts who failed to get investment banking business. Enron no black box. 6/01 Fundamentals improving. Long term Erns growth will reach 25%. 4/01-7/01 Insiders sell 2,807,803 shares for $143+ million. 7/01 Enron will hit or beat EPS estimates. Re: possible losses in Broadband and India - "All of these [questions] are bunk!" 7/01 Strong 2Q 01 income - strong growth and strong profits. EES to double profits in 01. Fundamentals excellent. No loss on Dabhol. Will have 01/02 EPS of $1.80-$2.15. Stock will recover. 8/01 Skilling resigns. Co. never in better shape. Strongest ever. No changes in outlook. Performance accelerating. Nothing to disclose. Numbers look good. No problems. No accounting issues. Enron machine in top shape. The best of the best. Expect stock to recover. 3/01 VOD deal terminated - Blockbuster failed to provide movies. Technology sound. Rapid growth intact. Stock selloff overdone. All businesses doing very well. Will hit Erns targets. 4/01 Great 1Q 01 results. WEOS outstanding, EES + EBS rapidly accelerating - each generating high levels of Erns. Very optimistic. Increase 01 EPS to $1.75-$1.80. 15% growth in 02. Growth sustainable for years. 8/01-9/01 Insiders sell 685,667 shares for $24+ million. 5/01 Fundamentals improving. Enron's fortunes have not peaked. Erns power continues to grow. 8/01 Performance never stronger; business model never more robust; growth never more certain. 9/01 Lay: "incredibly cheap stock." 10/01 Insiders sell 362,051 shares for $6+ million. 10/01 $1 billion writeoff; $1.2 billion shareholder equity reduction. Core fundamentals strong. Excellent prospects. Strong EPS outlook; liquidity fine. 12/01 Enron bankrupt. 200 100 10/19/98 = 100 0 Class Period 10/19/98 - 11/27/01 07/31/1998 12/22/1998 05/18/1999 10/08/1999 03/02/2000 07/25/2000 12/14/2000 05/10/2001 10/08/2001 03/04/2002 10/12/1998 03/08/1999 07/29/1999 12/20/1999 05/12/2000 10/04/2000 02/28/2001 07/23/2001 12/18/2001 0
Page 1 and 2: UNITED STATES DISTRICT COURT SOUTHE
Page 3 and 4: Page c. The Outside Directors Who S
Page 5 and 6: Page 5. Defendants Claim They Can A
Page 7 and 8: Page Chiarella v. United States, 44
Page 9 and 10: Page In re AST Research Sec. Litig.
Page 11 and 12: Page Krim v. BancTexas Group, 989 F
Page 13 and 14: Page Santa Fe Indus., Inc. v. Green
Page 15 and 16: Page LEGISLATIVE HISTORY H.R. Rep.
Page 17 and 18: in various elements of Enron's sche
Page 19 and 20: to generate 40% of the profits Enro
Page 21 and 22: • No other company offered such i
Page 23 and 24: of dollars to maintain its liquidit
Page 25 and 26: In fact, in mid-8/01, an Enron exec
Page 27 and 28: and course of business, that Enron'
Page 29 and 30: Investigations Subcommittee of the
Page 31 and 32: LJM's interest, Enron had agreed in
Page 33 and 34: fraudulent course of business by ap
Page 35 and 36: As stated above, the Board received
Page 37 and 38: deceptive device, J.P. Morgan and E
Page 39 and 40: e triggered, which would require En
Page 41 and 42: I realize that we have had a lot of
Page 43: Debt Amount of Understatement Share
Page 47 and 48: year and make any recommendations t
Page 49 and 50: • Committee receives a document f
Page 51 and 52: 1996) (it is improper to isolate "t
Page 53 and 54: defendants' alleged securities frau
Page 55 and 56: The CC specifies precisely what sta
Page 57 and 58: Date Statement Outside Director Sig
Page 59 and 60: Robertson, 32 F. Supp. 2d. 443. The
Page 61 and 62: facts that affect the validity or p
Page 63 and 64: provides: deceptive device or contr
Page 65 and 66: Id. at 363-64. Accord Heller v. Am.
Page 67 and 68: The Court said: "[T]he text of the
Page 69 and 70: 3. The CC Alleges Facts Giving Rise
Page 71 and 72: These actions alone are enough to d
Page 73 and 74: would have resulted in a $0.4 milli
Page 75 and 76: approval of them was necessary, and
Page 77 and 78: These are distinct liability theori
Page 79 and 80: Thus, Enron's Board had continuous
Page 81 and 82: of a mere $13 million (an almost 10
Page 83 and 84: is an issue of fact that is inappro
Page 85 and 86: 100 times those in prior periods. 4
Page 87 and 88: a considerable number of shares aft
Page 89 and 90: (g) Norman Blake Although Blake onl
Page 91 and 92: This inquiry into contemporaneity p
Page 93 and 94: puts and calls); see also Dau v. Ce
Page 95 and 96:
unequivocally hold Rule 9(b) does n
Page 97 and 98:
offending registration statement. S
Page 99 and 100:
arguments are nothing more than a c
Page 101 and 102:
occurred via the LJM2 partnership's
Page 103 and 104:
Enron provides premium broadband de
Page 105 and 106:
actually hedging with itself, not r
Page 107 and 108:
For example, the 00-01 Registration
Page 109 and 110:
illion as of 7/01. And, contrary to
Page 111 and 112:
also incorporated all documents fil
Page 113 and 114:
possession, direct or indirect, of
Page 115 and 116:
Anheuser-Busch Cos. v. Summit Coffe
Page 117 and 118:
made by the primary violator." Id.;
Page 119 and 120:
IV. Conclusion Accordingly, based o
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