Page 3 of 3

The underperformance of the broadband business, which coincided with the broad collapse of the
telecommunications market, is among several problems that have dogged Enron lately.

They include a costly payment fight with the Indian government over the $3 billion Dabhol power plant, the
vilification of Enron by California politicians who blame Texas companies for their power crisis, and the
breakup of a marquee video on-demand broadband Internet deal with Blockbuster Inc. (news/quote) (BBI.N).

Answering an employee question, Lay said there was no truth to a rumor that Royal Dutch/Shell RD.AS
(SHEL.L) was planning a hostile takeover of Enron because of the stock's recent weakness.

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From: Schultheiss, Heidilynne

Sent: Monday, October 29, 2001 10:06 AM

To: Carleton, Norman; Nickoloff, Peter
Subject: Once-Mighty Enron Strains Under Scrutiny
October 28, 2001

Once-Mighty Enron Strains Under Scrutiny
By ALEX BERENSON and RICHARD A. OPPEL Jr.
IS time running out for Enron?

At the beginning of this year, the Enron Corporation, the world's dominant energy trader, appeared unstoppable.
The company's decade-long effort to persuade lawmakers to deregulate electricity markets had succee’ m
California to New York. Its ties to the Bush administration assured that its views would be heard in
Washington, Its sales, profits and stock were soaring.

And tinder the leadership of Jeffrey K. Skilling, its chief executive, Enron's arrogance had grown even more
quickly.

The company, based in Houston, drij contempt for the regulators and consumer groups that stood between it
and fully deregulated markets - for electricity, water and everything else. Everyone would win under
deregulation, Enron said - especially its shareholders, whose stock would soar as the company profited from
creating new markets.

"We are on the side of angels," Mr. Skilling said in March, dismissing those who saw the company as a
profiteer in California's energy crisis, "People want to have open, competitive markets. They want fair
competition. It's the American way."

But less than a year later, everybody seems to have lost, especially Enron's investors. Enron's stock is plunging,
and questions about its finances are mounting.

Some experts in the energy industry worry that if the crisis at the company worsens, trading in natural gas and
electricity could be seriously disrupted and energy prices could grow more volatile. In a worst-case outlook,
Enron could become the 2001 version of Long-Term Capital Management, the huge hedge fund whose collapse
roiled financial markets during the fall of 1998. Enron's shares have fallen more than 80 percent this year,
erasing $50 billion in shareholder value.

Enron closed on Friday at $15.40, down 95 cents, after hitting a 52-week low of $15.04 earlier in the day.

The future of electricity deregulation is in doubt, thanks to blackouts and soaring power prices in California
earlier this year - a crisis that ended only when that state contradicted deregulation's basic tencts by intervening
deeply in the power market. Enron's efforts to become a profit-making water supplier and to create a new
market in broadband communications capacity have been expensive failures. In August, Mr. Skilling quit,
forcing Kenneth L. Lay, his predecessor as chief exccutive and still Enron's chairman, to resume day-to-day
contro! of the company.

The company declined to make senior executives, including Mr. Lay, available for comment, and asked that
questions be submitted in writing. Mr. Skilling could not be reached,

Enron's problems boiled over earlier this month, when it disclosed that its shareholders' equity, a measure of the
company’s value, dropped by $1.2 billion in the last quarter because of a deal disclosed only very hazily in

Enron's regular financial statements. The Securities and Excl Commission is looking into the company’s
financial reporting, and some investors question whether Enron has overstated profits at its primary business of

1 02630

01300000001239


A quick look at Enron's bonds shows the skepticism in the market. Enron's bonds are trading at about
25 cents on the dollar, which means bondholders are expecting to get only partial payment for their
investment, or are expecting that payment to be far off in the future.

To be sure, some investors who specialize in trading distressed stocks have been making profits on
Enron shares as the stock popped back up. Some of these investors may have shorted Enron's
stock are buying to close out their positions.

However, some of the activity may come from amateur investors, who think that there still could be
hope for a rebound.

“PG&E didn't go to zero," said Andre Meade, an analyst at Commerzbank, referring to the stock of
PG&E Corp. ). Burdened by debt from California's high-flying power prices, PG&E's Pacific Gas
& Electric Co. unit filed for bankruptcy protection in April. "But there was a good chance its
shareholders would ge paid. In my opinion, Enron's equity is likely to go to zero, and even
bondholders will not be paid.”

Enron shares recently traded at $1.15, up 28 cents, or 32.2%, on volume of 154.6 million compared
with average daily volume of 42.2 million.

-By Christina Cheddar, Dow Jones Newswires; 201-938-5166; christina. cheddar@dowjones.com

Tracking: Recipient Delivery Read
Wiedman, Mawk Delivered: 12/8/01 2:55 PM Read: 12/5/01 4:22 PM

01300000000069


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Page 3 of 3
telecommunications market, is among several problems that have dogged Enron lately.
They include a costly payment fight with the Indian government over the $3 billion Dabhol power plant, the
vilification of Enron by California politicians who blame Texas companies for their power crisis, and the
breakup of a marquee video on-demand broadband Internet deal with Blockbuster Inc. (news/quote) (BBI.N).

Answering an employee question, Lay said there was no truth to a rumor that Royal Dutch/Shell RD.AS
(SHEL.L) was planning a hostile takeover of Enron because of the stock's recent weakness.

02931

1/15/02

01300000001540


the effect on cash flow. So a company that sells its shares for $10 each, and buys them back at $50, or at $1, will

no eamings effect. Enron said that the reduction to shareholders equity, and a related reduction in notes
receivable, “is the result of Enron's termination of previously recorded contractual obligations to deliver Enron
shares in future periods.”

Stephen Moore, an analyst with Moody's Investors Service who has put Enron's debt on review for a possible
downgrade, said that while some of the details were not clear, "Essentially, Enron's promise was that a certain
amount of Enron's shares would be worth $1 billion. The shares plummeted, and they were not” worth that
much.

Enron emphasizes its own version of earnings, which leaves out some expenses, and directs attention away from
its balance sheet, which is disclosed only in S.E.C. filings, not in the earnings news relcase. The reduction in
sharcholders' equity would be shown only on the third-quarter balance sheet, which has yet to be released.

Earlier this year, Jeffrey Skilling, then Enron's chief executive, reacted strongly when a questioner on a
conference call challenged the failure to provide balance sheet numbers when earnings were released. He called
the questioner a common vulgarity that surprised many listeners. Mr. Skilling later resigned for what he said
were personal reasons and Mr. Lay, the chairman and former chief executive, took back the latter title.

While Enron was riding high, its often difficult-to-understand reports were ly seen as not being a
problem, The company to be the dominant force in the business of energy trading, and to be able to
produce phenomenal profits. When Mr. Lay was reported as having played an important role in formulating the
Bush administration's energy policies, the aura was only enhanced. In January, the shares traded for $84.

But now, with some of the company’s ventures clearly having run into problems, it appears that investors are
growing less willing to accept the company’s reports. That the partnership transactions were disclosed at all was
because of the involvement of the chief financial officer, and some have wondered if there might have been
similar deals with others,

Mr. Lay has promised to make the company's financial reports easier to understand, and last week's report was
at first praised by some analysts for doing just that.

In a news release yesterday, Mr. Lay said the company welcomed the S.E.C.'s request for information. "We will
cooperate fully, with the S.E.C. and look forward to the opportunity to put any concern about these transactions
to rest,” he said.

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Carleton, Norman

From: Carleton, Norman

Sent: Tuesday, August 28, 2001 9:58
To: Belinda Blaine (E-mail)
Subject: FW: Enron artice

~~ Original Message-—~-

From: Carleton, Norman

Sent: Wednesday, August 22, 2001 10:12 AM
To: Nickoloff, Peter; Schultheiss, Heidilynne
Subject: FW: Enron article

~----Original Message-----

From: Norman Carleton [mailto:Norman.Carleton@worldnet.att.net]
Sent: Thursday, August 16, 2001 11:39 PM

To: Norman Carleton; norman.carleton@do.treas.gov

Subject: Enron article

fol

(a

AUG 15, 2001

Enron's Chief Executive Quits After Only 6 Months in Job 0 2 9 27

By RICHARD A. OPPEL Jr. with ALEX BERENSON

[ fz] 0 |ALLAS, Aug. 14 — Jeffrey Skilling, the chief executive of the Enron Corporation (news/quote), stunned Wall
| — Street today by announcing that he would quit after just six months in the job, calling the move a "purely
personal decision.”

But the abruptness of the departure left many analysts questioning whether a series of setbacks the company has
suffered played a part in the decision.

Kenneth Lay, Enron's 59-year-old chairman, will step back into the position he left early this year after 15 years as chief
executive,

Mr. Lay, who originally recruited Mr. Skilling to Enron, said tonight that he had agreed to stay on through the end of
2005 to "make sure we've got plenty of time to work out an orderly succession."

Mr. Skilling, 47, had been at the heart of the transformation of Enron from an old- line natural gas pipeline company to
the biggest and most aggressive of the new breed of unregulated energy traders that buy and scll billions of dollars of
electricity and other commodities daily.

That strategy helped Enron’s stock price soar during the last decade. But this year the company’s shares have fallen
sharply, as Enron has suffered from problems with its new broadband telecommunications trading unit, its investment in
a large power plant in India, and criticism from officials in California, who blame Enron and other energy companies fo
the collapse of the state's electricity market.

A former energy consultant at McKinsey & Company who joined Enron in 1990, Mr. Skilling built its energy-trading
operations into the company’s most profitable unit, accounting for nearly $1.7 billion — or 85 percent — of operating
income last year. He became president and chief operating officer in 1997, and in February of this year became chief

1/15/02

01300000001536


Enron Exposure Evident in the Credit Derivative Market Page | of 2

[x] Corporates

Publication date. 30-Nov-2001
Reprinted from Ratings Direct

News
Enron Exposure Evident in the Credit Derivative Market
‘Anglyst Nik Khakoo, Now York (1) 202496-2473: Mary Ryan, New York (1) 212-438-2080

—_ ————— NEW YORK (Standard & Poor's) Nov. 30, 2001— Standard & Poor's has
reviewed a number of credit derivative transactions in which Enron appears
and found exposure to the company in three different types of these
transactions. Divided among these deals, direct Enron credit exposure
potentially could total $3.3 bition

“Although much attention has been focused on Enron in relation to loan
exposures, the energy sector, and the commodities markets, it is also a
named source of credit risk in many credit derivatives transactions,” said Nik
Khakee, director of Standard & Poor's Structured Finance Derivatives group.

“In addition, Enron had an overall derivatives market strategy that included
credit derivatives. Thus Enron |s not only a source of credit risk in derivatives
transactions, it is a source of risk to derivatives transactions as it could
possibly cause termination events in swaps that Enron has contracted,” Mr.
Khakee continued.

‘On a global basis, Enron appears in $0 transactions as a reference entity or
reference obligation in pooled credit derivative transactions, meaning that
Enron is @ credit exposure. Two counterparties transact a swap in which the
default of Enron, as defined by specified credit event language defined in the
‘swap documentation, would lead to potential loss to one counterparty, the
floating-rate payer.

This loss is defined by @ valuation process whereby a settlement value for the
potential Enron exposure is determined. This value can often be the result of a

.—.. bidding process in the market where dealers are solicited. This bidding
process ls commonly referred to as cash settiement. Alternatively, physical
settlement may be selected as the settlement mechanism whereby an Enron
fixed income instrument is exchanged for the notional value of the Enron
exposure in the overall pool.

These transactions total $79 biftion in total notional amount, The potential
Enron exposure in the deals in aggregate totals $3.3 billion or 0.75% of total
notional exposure. It is important to note that these transactions are primarily
investment grade credit derivative collateralized debt obligations in which
credit support to rated noteholders typically averages 2%-4%. Therefore, a
default of Enron and low recovery on Enron post-default would significantly
erode this credit support.

“Standard & Poor's is currently reviewing all transactions in which Enron is @
named reference entity for possible rating actions,” Mr. Knakee said.

Enron may also appear in this same type of crecit derivative transaction but
as part of a small pool, rather than a large poo! of overall credit exposure. In
this case, Enron may potentially be the single reference source of credit risk in
‘@ credit derivative transaction, irrespective of the credit risk posed by the
actual counterparty risk in these transactions (which is not addressed in the
estimated exposures identified above).

Enron appears as a reference credit in six transactions with potential total
notional exposure to Enron of $2.7 billion in these single-name risk or small

file:/(CAWINDOWS\Temporary%20Internet%20Files\OLK303 1\SPEnron2.htm 02849 V15/02

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Enron shares were recently trading at $7. 86, down $1.20, or 13.2%, while Dynegy shares changed
hands at $43.29, down 31 cents, or 0.8%.

A ChevronTexaco Corp. (CVX) official wasn't immediately available to comment on the matter.

ChevronTexaco, San Francisco, owns 26% of Dynegy and is providing $2.5 billion in cash to Dynegy
as part of the buyout. Last week, an inital payment of $1.5 billion was transferred to Dynegy and then
to Enron to help meet Enron's immediate cash needs.

Dynegy's merger agreement with Enron contains several provisions beyond the standard "material
adverse change” provision that would allow the deal to be terminated. Still, some question whether
Dynegy was able to fully assess Enron's liabilities prior to striking the deal,

Investors have expressed frustration with Enron's lack of disclosure, and even marvelled at the fact
that the 10-Q included material that could have been mentioned in previous filings or company
conference calls,

By Christina Cheddar, Dow Jones Newswires; 201-938-5166
christina. cheddar@dowjones.com

(Corrected 1:50 PM)

Later, Dynegy spokeswoman Jennifer Rosser said Enron's filing Monday was an "important step” in
the due diligence process Dynegy was undergoing as part of its pending acquisition of Enron.

"This kind of filing is exactly what due diligence is about," she said.

Tracking: Recipient Detivery Road
‘Sharer, Jamas: Delivered: 11/2001 5:13 PM Read: 11/20/01 5:26 PM
Cetin, I Delivered: 11/20/01 5:13 PM Deleted: 1/302 10:55 AM

01300000000054


Page 10 of 11

So, we have an advantage. It is not often you get a distinctive advantage and we are going to be working hard to keep that advantage for a long
time into the future.

DOBBS: Now in the -- in terms of the addition of new customers, some analysts are a lithe disappointed by a relatively small shortfall in new
customers and in the third quarter. What's the fourth quarter look like for you?

ESREY: We haven't announced fourth quarter. Actually, we had a buge gain -- gain in the third quarter. We surprised people on the upside,
Fourth quarter we will be announcing in a few days, and as you know, under the rules of the SEC, I'll have wait ‘til then to make the
announcement.

DOBBS: Ob, I was just talking about the sign-ups of pew customers. I wasn't talking about earnings, Bill.

ESREY: Well, that's one that is akin to the other.

DOBBS: Your stock, like the stocks of so many companies, in particular, telecom companies, languishing here. Tremendous overcapacity im
telecom in general. How long is it going to take to you work through the period?

ESREY: I's been @ tough time for the whole industry. I think it is going to be sometime particularly on the wire line side. On the wireless side
there isn't that. There's lot of competitors but there really isn't overcapacity.

I think most of the wireless companies are struggling to keep up with the demand of the marketplace. But an the wireline side there is a lot of
capacity, it is already being absorbed, but it is not going to go away tomorrow.

DOBBS: OK, Bill Esrey, congratulations, thanks for being here and good luck in managing through what I know will be another tough year.
‘Thanks.

ESREY: Thanks, Lou.
DOBBS: Bill Esrey.

Just ahead, we will take a look at your thoughts, including an answer to a question troubling many investors: Is this market overvalued? Stay
with ws.

(COMMERCIAL BREAK)

DOBBS: Now taking a Jook at your thoughts. Jim Davies writing in from Mexico says: "When I accentuate the positive, I'm doing viewers a
disservice." His beef? That we are ignoring the high valuation of the market.

Jim writes; "The P/E level of the markets now is about double the historical norm, This might he understandable if we are in a boom economy,
but we are not. We are still trying to find our way back from an incredible equity bubble, yet irrational exuberance remains in tact.”

Based on the latest quarter, on an as-reported basis, it's true. The S&P $00 is trading around 40 times earnings, that's more than double the long.
term average, But simply putting those numbers side-by-side distorts the whole picture, As Professor Jeremy Siegel, professor of finance at the
Wharton School points out, the historical average is skewed by very bad episodes in the economy, like double-digit mflation and severe
recessions. And That pulled valuations down.

‘The professor's conclusion, you cannot use today's recessionary earnings when determining the future profit potential of companies. They're
simply not out of line, he says, with the favorable economic conditions being built now,

Gordon Travis in Kalamazoo, Michigan writes in to say an economic stimulus package will only serve to stinmlate the economies of other
countries, saying, “isn't there something we can do to boost our own manufacturing sector? | am a displaced steel worker and it is painful to see
the influx of foreign goods flooding our markets.”

Bay American means more now than ever before, and unfortunately, Gordon, you have analyzed the situation precisely as it is. The
manufacturing sector dwindling to its smallest level ever.

On to the government's special fund set up to help the families of those killed on September 11 and the growing outrage that we're receiving as
what's being viewed by some as apparent greed by some a few of those families.

Barb Harris writes in to say, “I don't want to minimize the tragedy of that day, but tell me, bow much the survivors families in Oklahoma City
received."

Will Simpson in New York, writing in to say, "While our hearts are broken, and the loss of so many is 2 national tragedy, we have lost our
perspective. Such a major commitment to create @ special class of victims to be supported by the federal government is unsound and ill-
conceived”

1/15/02 02724

01300000001333


Page 6 of 7

indictment on our whole system,

It's the aura of power around Ken Lay and other Enron executives, his access to George Bush, his friendships with top Cabinet members that
we are seeing that somehow has a chilling effect on any kind of investigation, watchdogs.

We had really everybody not minding the store, from political leaders who are now falling all over themselves to investigate Enron, but who
really did nothing during the many months that Jed to the collapse, including allowing Harvey Peete (ph) to be named and confirmed by the
Senate as head of the SEC, even though he had had -- all his relationships with the — with Arthur Andersen and with many accounting firms
and had lobbied against changes in the rules that would have perhaps prevented the kind of auditing that Arthur Andersen did that allowed all
these things to go on unchecked for so many months.

Also, we had financial journalists, financial watchdogs, everybody giving high marks to Enron without any real investigation. I think at the
heart of that is that glow of power around Ken Lay and Enron.

CRIER: Peter, to expand on that a little bit, we've got the SEC connection there. You've got the -- the head of the energy regulatory
commission that was basically flipped, many say at Enron's request, so that they had a buddy over there,

The commodities exchange is supporting legislation to deregulate. Just so happens that Senator Gramm's wife, Wendy — a top econamist -- is
over there. Leaves them, joins Enron. This good senator is -- is very critical in passing through that deregulation and legislation.

You've got many former Enron employees and advisers, Larry Lindsey. Now our secretary of the Army, our -- our trade head, all of these
People. It is $0 incestuous and nobody seems to think that that access and influence could have brought down Enron.

PETER COY, "BUSINESS WEEK" ECONOMICS EDITOR: Right. I — I think that the incest is quite remarkable, but | also think that people
are drawing a connection that is far from proven so far, which is that somehow this tars energy deregulation.

I happen to think that electricity deregulation has not worked the way it's been done so far, particularly in California, But I think that the
argument that because Enron collapsed, therefore energy deregulation was a bad idea, just doesn't make sense.

CRIER: Well, energy deregulation is going on all over the work. It is probably going to be the trend. We aren't going to avoid that. But that's
sort of like focusing on the pension question, isn't it?

If you look at, oh, well, it's the deregulation politics or ob, it's the pension problem, that's a great way to ignore what I see as major political
corruption. When I say that, I'm not pointing a finger at George W. Bush or pointing a finger at Dick Cheney.

Because you've got Republicans and Democrats who were seduced by the power Arianna described, who were influenced by the corporate
contributions and who allowed tremendous access and literally direction of this country's cnergy policy by a company who wasn't coming
clean.

COY: Right. And the point ] was trying to make is that connecting Enron to the failure of electricity deregulation, the reason it doesn't make
Sense, if you think about it ~ if the purpose of electricity deregulation had been to protect large powerful firms from failing, then you could
say, yes, electricity deregulation failed to do that because Enron did fail.

‘That was never the point of it. The point of it was to lower rates for consumers. You could argue that that hasn't worked either, And I'm not
defending electricity deregulation, T'm going against the point that Arianna made that somehow this proves -- Enron's failure proves the failure
of electricity deregulation,

CRIER: I don't buy that cither. But in fact, William Bradley, we have to get into the whole notion of energy, natural gas and other things like
bandwidth as a commodity, which gets -- starts to get very complex and the regulations of a commodity.

But back to -- Arianna mentioned it, but nobody is talking to me and I want to hear this -- about how much influence this company had on our
energy policy, How much Dick Cheney listened to them.

1 was shocked when he was confronted with the six meetings, the accounting office trying to get him to tell what happened in those meetings.
The White House basically said this reflects the open and inclusive approach of Cheney's energy task force, that it was dominated by Ken Lay
and Enron. I doa't bay it. What do you think, William?

WILLIAM BRADLEY, "AMERICAN PROSPECT": It really doesn't make any sense at all. I think as Arianna was suggesting, there’s a
tremendous connection between big money politics and unfettered markets. And that's what we see with Enron's role,

Enron was really the forerunner for both deregulation and for globalization in the energy markets. And both have ~- have come a cropper.
There are tremendous problems around the world with U.S. firms investing, running into problems in India, as Etsron did. In India, they...

CRIER; Before you go into that, we've got about 15 seconds left.

1/15/02 02 7 1 3

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0900000000071


Carleton, Norman

From: Carleton, Norman

Sent: Monday, October 29, 2001 9:18 AM
To: Schultheiss, Heidilynne; Nickoloff, Peter
Subject: Enron

October 29, 2001

Money & Investing

Enron Is in Discussions With Banks
For Credit Line of up to $2 Billion

By JATHON SAPSFORD and JOHN EMSHWILLER
Staff Reporters of THE Want STREET JOURNAL

Enron Corp., scrambling to restore confidence in its finances, is negotiating with banks for a new
credit line of between $1 billion and $2 billion, and is likely to close a deal within days, according to
Officials familiar with the matter.

The new credit line is intended to bolster Enron's financial condition and head off a potentially
devastating loss of investor and business confidence. The new credit would supplement existing
lines, which are lar: tapped out after Enron last week drew down about $3 billion to increase cash
reserves and calm fears in the stock, bond and energy markets.

An Enron spokesman confirmed that the company is negotiating a new credit line, but said he
couldn't supply any further details. Houston-based Enron is the nation’s biggest energy trader anda
principal in nearly one-quarter of all electricity and natural-gas trades. Once a favorite of Wall Street,
the company now is in the unfamiliar position of convincing a deeply concerned investment
community that, despite difficulties, its finances remain sound.

Confidence in Enron's situation was shaken after Enron earlier this month announced a $618 million
third-quarter loss and disclosed a $1.2 billion erosion of shareholder equity related to controversial
transactions it had done with entities connected to its then-chief financial officer, Andrew Fastow.

[Enron]

Last week, Enron replaced Mr. Fastow and said that the Securities and Exchange Commission was
looking into the transactions. The company has consistently said that the transactions were proper
and legal.

Enron's stock price fell again Friday. As of 4 p.m., in composite trading on the New York Stock
Exchange, Enron was down 95 cents at $15.40. Enron has fallen 50% in the past two weeks and is
down 83% from a Sept. 18, 2000, high of $89.63.

Late last week, Enron tapped its existing credit lines, with part of that money being used to redeem
nearly $2 billion of its outstanding commercial paper, or short-term corporate |OUs. Ron Barone of

credit-rating agency Standard & Poor's said he believes that Enron was "getting a bit more
resistance" recently in rolling over its commercial paper as it came due. Thus, Enron probably

02909

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0900000000078


Carleton, Norman

From: Schultheiss, Heidilynne

Sent: Monday, October 29, 2001 3:59 PM

To: Carleton, Norman; Nickoloff, Peter
Subject: Enron Tries to Dismiss Finance Doubts
October 24, 2001

Enron Tries to Dismiss Finance Doubts
By FLOYD NORRIS

Enron has ample access to cash, the company’s chief executive said yesterday as he assured investors that there
was no need for additional write-offs stemming from unusual financing activities.

In aconference call with investors that was hastily scheduled after Enron's stock plunged on Monday, the chief
executive, Kenneth W. Lay, strongly defended the company’s chief financial officer and said there was no
conflict of interest involved in transactions that the Securitics and Exchange Commission was looking into.

But he refused to go into detail on the transaction that Enron made with partnerships run by Andrew S. Fastow,
the chief financial officer. In addition, Mr. Fastow, while declaring that Enron "expects to continue to have
sufficient liquidity to meet normal obligations,” declined to answer any questions about it.

The conference call, which began just as trading opened on the New York Stock Exchange, at first seemed to be
reassuring investors. Within minutes of the beginning of the call, the share price rallied to $23.25. But it soon
began falling, and ended the day down 86 cents, at $19.79. The day's low of $19.62 was the lowest since Jan.
12, 1998, and was down 78 percent from the high set by the stock in the summer of 2000.

Until recently, most investors focused on the company’s reported operating earnings, which showed good results
as it became a leading player in energy markets. But the focus has shifted to a series of transactions, some
involving off-balance- sheet financing. One, involving partnerships controlled by Mr. Fastow, led to a $1.2
billion reduction in shareholder equity that raised concern last week and led to S.E.C. inquiries that the company
disclosed on Monday.

One of the company’s strongest supporters has been David Fleischer, an analyst at Goldman, Sachs, But he told
Mr. Lay on the call yesterday that Enron had to be more forthcoming with information, "There is an appearance
that you are hiding something,” he said.

After the call, Mr, Fleischer expressed disappointment. "They've engaged in a number of transactions that one
wonders about, and that are hard to understand," he said in an interview. "They have not been as forthcoming in
explaining them" as is needed, he said, But he said he was still recommending the stock. "I don't think
accountants and auditors would have allowed total shenanigans," he said. "In the absence of total shenanigans
going on at this company, there is tremendous value here.”

Mr. Lay cited the S.E.C. inquiries as a reason for not discussing details on the transactions involving the
partnerships that were controlled by Mr. Fastow. But he emphasized that both he and the company's board
“continue to have the highest faith and confidence in Andy.”

Mr. Lay said that auditors from Arthur Andersen had carefully reviewed Enron's reporting in conjunction with
another off-balance-shect vehicle, called Marlin. That company owns one-third of Azurix, an Enron subsidiary
that owns Wessex, a British water utility. The auditors "have determined there is no write-down required," he
said under questioning by Richard Grubman of Highfields Capital Management, a money management firm.

Mr. Grubman said that Marlin owed almost $1 billion on debt that was guaranteed by Enron but had no assets
other than the Azurix stake. Noting that Enron had paid about $300 million to buy a third of Azunix from public
shareholders and had since taken write-downs on its investment in Azurix, Mr. Grubman asked why the
company was not setting up reserves to cover its exposure on that debt, which under a complicated arrangement
could end up being satisfied through the issuance of Enron shares.

: 02640

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Dell Computer's. No matter how well-run the companies, these high dependencies are risky. "A lot of
employees invest in the any stock if they like the company," says Louis Berney, the newsletter's editor.
"It's a crime perpetrated by the employees against themselves."

Lawsuits may uncover wrongdoing, but outwardly, Enron's 401(k) program seems fairly ‘ypica says Jack
VanDerhei, a pension expert at Temple University. According to company spokesman Mark Palmer, Enron
matched employee investments with a 50 percent stock contribution: If] invested $5,000, Enron would put up
$2,500 in stock. The stock contributed by the company could not be sold until a worker reached 50; but there
were 20 investment choices -- including buying Enron stock -- for personal contributions. True, there was a total
trading ban from Oct. 29 through Nov. 12, because the plan's outside administrator was being changed. But,
says Palmer, investors were informed of a ban in late September and early October. They could have sold then
or anytime earlier, Enron's stock had dropped all year, from $68.50 in February to $49.10 in June to $27.23 in
September. Obviously, many didn't.

Enron's downfall stemmed mainly from its own mistakes. Whether some corporate officials crossed the line
between creative obscurity and illegal concealment is an open question, But in a larger sense, the collapse
reflected the financial fever of the past decade. The profit motive -- the promise of reward for risk and effort --
is a great incubator of invention and wealth, But those who glorify capitalism's triumphs often forget that it's
also vulnerable to the frailties of human nature. There was a mass merchandising of dreams and delusions that
was indiscriminate in its effects. Candor was corroded, judgment clouded. Pursuing sclf-enrichment, people
often follow the path of least resistance, It sometimes leads to a cliff.

© 2001 The Washington Post Company

; 02863

01300000001472


Carleton, Norman
———— ee sSsSsSSsSsss

From: Carleton, Norman

Sent: Wednesday, December 05, 2001 2:55 PM

To: Wiedman, Mark

Subject: FW: DJ: Another Enron ‘Rally’ As Shorts Close Out Positions

~—Original Message--—

From: Carleton, Norman

Sent: Wednesday, December 05, 2001 2:42 PM

To: Bitsberger, Timothy; Gross, Jared; Pietrangel, Fred; Berard, Steve; Nickoloff, Peter; Schultheiss, Heicihyne
‘Subject: 1D): Another Enron "Rally’ As Shorts Close Out Positions

December 5, 2001

Another Enron ‘Rally’ As Shorts Close Out Positions

By CHRISTINA CHEDDAR

Of DOW JONES NEWSWIRES

NEW YORK -- Even as more Enron Corp. (ENE) units succumb to bankruptcy, the Houston energy
trader's stock has bounced up over 30% Wednesday in heavy volume.

Buyers of the stock Wednesday included professional investors and traders closing out short
positions as well as some retail investors.

The movement comes even though Enron shares will likely be worthless by the time its bankruptcy
court case is through. This is because there is a strict hierarchy that is followed in a bankruptcy
proceeding, and the last in line to get paid are the common shareholders of Enron's stock.

Standing at the front of the line are the lenders who provided the company with debtor-in-possession
financing. In Enron's case, this is the $1.5 billion it received from Citigroup Inc. (C) and J.P. Morgan
Chase & Co. (JPM).

Next in line are secured lenders and bondholders whose claims are backed by the company's assets.
Behind them are unsecured creditors such as Enron's trading counterparties and vendors seeking to
paid.

Anything left over after all of that goes to the company’s stockholders.

The original 14 Enron units that filed for bankruptcy on Sunday had more than $18 billion in
combined liabilities, without accounting for any of its off-balance-sheet obligations, which is what got
Enron into trouble in the first place.

The Wall Street Journal, citing information provided by bankers involved in the process, said the off-
balance-sheet liabilities could add another $27 billion in debt.

quesday’s bankruptcy filing by another three units of the company - Enron Net Works LLC, Enron
Global Markets LC and Enron Industrial Markets LLC - added $439 million in debt.

And there is no assurance, Enron won't make additional bankruptcy filings.

01300000000068


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Page 11 of 11

Please send us your thoughts. Our address: Moneyline@cnn.com, Please include you name and address.

“WOLF BLITZER REPORTS" begins in just a few minutes. Let's go to Wolf now to find out what's in store -- Wolf.

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fire, Our Bill Hemmer is right there, And in our CNN WAR ROOM discussion, what are the new dangers facing American forces. All that and

much more at the top of the hour -- Lou.

DOBBS: Wolf, thanks, we are looking forward to it.

Coming up next bere, some reports that may move at least in part, some part of the markets tomorrow. Stay with us.

(COMMERCIAL BREAK)

DOBBS: Tomorrow, on the economy, the Producer Price Index for December will be reported, Federal Reserve Chairman Alan Greenspan will

be talking before business leaders in San Francisco. He will be talking about the prospects of the economy, Talking in some detail for the first

time in point of fact, since October of last year.

Ford is announcing its restructuring, and reportedly those plans include as many as 20,000 layoffs.

And the Enron investigation is accelerating. Enron is expected to announce a winning bid for its trading operations The judge in that case also

deciding where the bankruptcy proceedings will be held and of course Congress continuing: its investigation, set tomorrow to send out

subpoenas to various parties, as many as 50 subpoenas expected to be issued tomorrow.

For tonight that's MONEYLINE. Thank you for being with us. I'm Lou Dobbs, Good night from New York, "WOLF BLITZER REPORTS"

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From: Schulthelss, Heidilynne

Sent: Wesne: , October 31, 2001 9:37 AM

To: Carleton, Norman; Nickoloff, Peter

Subject: NY Times OpEd: Repeal of AMT and Benefit to Enron

‘October 31, 2001 The One-Eyed Man py raut kruGMan somewhere I read that to really understand
legislation you have to look for the clause giving special consideration to one-eyed bearded men with a limp -
that is, you have to look for the provision that turns a bill ostensibly serving a public purpose into a giveaway
for some special interest. Most of the commentary about the "stimulus" bill passed by the House last week
focuses on the huge benefits it lavishes on giant corporations. But that doesn't tell us much about the specific
interests being served. What's good for corporate America is good for General Motors; it would be hard to
devise a bill that consists mainly of corporate giveaways without giving a lot of money to the biggest
companies. To understand what the bill is really about, you have to look at the big payoffs to not-so-big
companies, One piece of the bill is custom- designed to benefit a small group of multinational financial firms,
Another is clearly there for the sake of certain health insurers, But the most remarkable thing is how much of the
benefit from repeal of the alternative minimum tax - a measure that is also included in the Bush administration's
supposed stimulus plan, and which seems to be one of the administration's key priorities - goes to companies
that are not all that big. For cxample, it's not too surprising that calculations by Citizens for Tax Justice show
General Motors, with its 380,000 workers, getting a check for $800 million. But it's quite amazing that TXU
(formerly Dallas Power and Light), a company with only 16,000 employees, would get a check for $600
million. And there are a number of medium-sized companies that, like TXU, are in line for surprisingly big
benefits. These companies include ChevronTexaco, Enron, Phillips Petroleum, IMC Global and CMS Energy,
What do they have in common? Well, they tend to be in the energy or mining businesses; and they tend to be
based in or near Texas. In other words, the one-eyed bearded man with a limp looks a lot like Dick Cheney.
There is almost certainly a lot of overlap between the companies that would derive large benefits from
alternative minimum tax repeal and those that would have received large subsidies under the energy plan
devised by Mr. Cheney's task force. You may remember that the administration, in apparent defiance of the law,
refused to make the records of that task force's meetings available to Congress; that's one of those issues that
seems to have been dropped after Sept. 11. And I guess it's superfluous to point out that the big winners in all
this seem to be companies that gave large, one-sided donations to the Republican Party in the last election, (This
is not to suggest that Democrats are any less susceptible to the influence of money.) To me, the story of the
Bush administration is starting to look like the plot of "Victor/Victoria.” First we had a candidate who was
supposed to be a moderate. Then we leamed, or thought we learned, that this was a mask; he was really a hard-
line conservative who pretended to be a moderate in order to gain office. But the latest economic proposals
from the administration, like the Cheney energy plan, don't look as if they came from serious free-marketeers,
They don't make sense in terms of either demand-side or supply-side economics, but they do give a lot of
money to certain companies. So maybe ideology was just another mask for someone who was really the
candidate of corporations - not corporations in general, but a small group of companics with a quite specific set
of business interests - and who is only pretending to be a hard- line conservative who pretended to be a
moderate in order to gain office. It's an interesting and all too plausible picture. But it's a picture that most
Pcople will never see on their TV, and that many people would refuse to accept no matter how strong the
evidence. That, of course, is what makes the whole thing possible. In the land of the blind, the one- eyed
bearded man with a limp is king. In last Wednesday's column I said the “original” war bonds were issued during
World War II. In fact, war bonds were also issued during the Civil War and World War I. I don't think this
affects the argument. i i

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and Mr, Ashcroft often shakes as if he’s not just seen great Caesar’s ghost but perhaps John Mitchell's as well,
Both have a history of letting politics override public policy that dates to the start of the administration. They've
seen no reason to reverse their partisan priorities even at a time when the patriotic duty of effectively fighting
terror should be their No. 1 concern.

Pre-Sept. 11, Mr. Thompson, in defiance of science, heartily lent his credibility to the Bush administration's
stem cell "cor ise” by going along with its overstatement of the viability and diversity of the stem cell
lines it would deliver to rescarchers. Post-Sept. 11, he destroyed his credibility by understating the severity of
the anthrax threat, also in defiance of science. Now he maintains that the $1.5 billion the administration is
requesting to plug the many holes in our public health system - almost all of it earmarked for stockpiling
pharmaceuticals, not shoring up local hospitals - is adequate for fighting bioterrorism. This, too, is in defiance
of all expert estimates, including that of the one physician in the Senate, the Republican Bill Frist.

It should also be on Mr. Thompson's conscience that for the first two weeks of the anthrax crisis he kept the
federal government's house physician - David Satcher, the surgeon general and a much-needed honest broker of
public health - locked away, presumably because Dr. Satcher, a Clinton appointee, became persona non grata in
the Bush administration for issuing a June report on tecnage sexuality that angered the religious right. Only after
Mr. Ridge arrived on the scene was the surgcon general liberated from the gulag.

As for Mr. Ashcroft, he has gone so far as to tum away firsthand information about domestic terrorism for
political reasons, Planned Parenthood, which has been on the front lines of anthrax scares for years and has by
grim necessity marshaled the medical and security expertise to combat them, has sought a meeting with the
attorney general since he took office but has never been granted one. This was true not only before Sept. 11 but,
says Ann Glazier, Planned Parenthood's director of security, remains true - even though her organization, long
targeted by such home-grown Talibans as the Army of God, has a decade's worth of leads on "the convergence
of international and domestic terrorism."

Ms. Glazier found the sight of Mr. Ashcroft and other federal Keystone Kops offering a $1 million reward for
anthrax terrorists a laughable indication of how little grasp they have of the enemy. "Religious extremists don't
respond to money,” she points out, Such is the state of the F.B.1., she adds, that one agent told a clinic to hold
onto a suspect letter for a couple of days “because we have so many here we're afraid we're going to lose it"
(perhaps among the Timothy McVeigh documents).

If either the attomey general or the secretary of health and human services inspired anything like the confidence
that, say, Mayor Giuliani does, there wouldn't have been a need to draft Mr. Ridge. Even so, he's mainly a P_R.
immick - 2 man who should have been in the administration in the first place reduced to serving as a fig leaf
for lightweights. As director of homeland security, he’s allegedly charged with supervising nearly 50
government agencies - so far with roughly a dozen staff members. When asked to define Mr. Ridge's
responsibilities, Ari Fleischer said on Wednesday that it was "a very busy coordination job,” but so far Mr.
Ridge is mainly sowing still more confusion.

The one specific duty that he has claimed - in an interview with Tom Brokaw - was that he'd be the one "making
the phone call” to the president to shoot down any commercial airliner turned into a flying bomb by hijackers.
That presumably comes as news to Donald Rumsfeld, who made no provision for any homeland secunty czar in
the Air Force chain of command he publicly codified days after Mr. Ridge's appointment.

Since the administration tightly metes out the news from Afi stan, we can only hope that the war there is
being executed more effectively than the war here - even as Mr. Rumsfeld and his generals now tell us that the
Taliban, once expected to implode in days, are proving Viet- Cong-like in their intractability, The Wall Strect
Joumal also reported this week that "instead of a thankful Afghan population, popular support for the Taliban
appears to be solidifying and anger with the U.S. growing.”

Maybe we're losing that battle for Afghan hearts and minds in part because the Bush State Department
appoinice in charge of the propaganda cffort is a C.E.O. (from Madison Avenue) chosen not for her expertise in
polic

'y or politics but for her salesmanship on behalf of domestic products like Head & Shoulders If
we can't effectively fight anthrax, I guess it's reassuring to know we can always win the war on dandruff.

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Page 3 of 11

DOBBS: Congressman Tauzin's committee, staff committee.
CHERNOFF: Precisely.

DOBBS; Committee staff rather was informed, and then came the statement and the disclosure from Andersen. Now the statement from
Andersen, Allan, is intriguing for a number of reasons. And I'd like to read, and I apologize to our audience for not having this up on the
screen.

But the firm says, “individuals in the firm involved with the Enron engagement disposed of a significant but undetermined number of
electronic and paper documents." This appears at least to me to be the suggestion that there’s some separation between the individuals of the
firm and the firm itself, which is unique amongst professional services firms.

CHERNOFF; Yes, And, Lou, the people from the House Commerce and Energy Committee are saying that the deletions of these documents
occurred in September, October and November when there already was some heat on Enron.

DOBBS: And the firm, the audit firm of Enron, Andersen, has retained former U.S. Senator John Danforth, a3 you know, to conduct an
immediate and comprehensive review of Andersen's record management policy. But it goes on here to say that they're also looking to him to
look for what they termed, “remedial and disciplinary actions within the firm". You're take on what that would mean?

CHERNOFF: Well, clearly they're looking for some people to blame, We don't know the full story just yet. And the investigators from the
House committee are actually planning to meet with the partner in charge of the audit of Enron next Wednesday.

DOBBS: And the next steps in Washington, in terms of Capitol Hill?

CHERNOFF: We have got a lot of investigations ongoing right now, at least four, five separate investigations on Capitol Hill. And we have got
also the Treasury secretary leading a number of policy reviews under direction of the president,

DOBBS: And, of course, a bankruptcy proceeding about to get underway in New York City, undetermined as yet as to whether st will be in
Houston, which is the desire of many of the creditors, or New York City, What is the latest there?

CHERNOFF: That is still being battled. And today, there was a meeting, in fact, reviewing bids for energy, for the Enron trading business. The
judge, Arthur Gonzalez, tomorrow in bankruptcy court may actually approve one of the bids for that business.

DOBBS: And Dynegy (Company: Dynegy Inc.; Ticker: DYN; URL: http:/www.dynegy.comy’), the punitive white knight for Enron in the
early stages and later a litigant against Enron, reaching a settlement on the pipeline, Where does that stand?

CHERNOFF; Right. They have actually gone ahead. They're going to be able to go abead and purchase the pipeline business from Enron that
they wanted.

DOBBS; OK, Allan, thank you. Allan Chernoff following this story as are we all and appreciate your diligence on it. Thank you.

Well, a reminder once again, we will have much more on this developing story tonight. We will be talking with Treasury Secretary Paul
O'Neill about this and a number of other issues as well.

‘We want to turn now to the war against terrorism, and report to you that the first wave of al Qaeda and Taliban prisoners have been flown out
of Kandahar. But despite an extremely high level of security, gunfire was heard, flares were seen, 2s the C-17 transport aircraft sped down the
runway. That aircraft took off without incident. No U.S, servicepeople were injured. A Marine spokesman says some people penetrated the
outer perimeter. They were not identified, but presumably they're al Qaeda or Taliban, but they are no longer there after some search for them
by the military,

Twenty al Qaeda and Taliban prisoners are being flown to the U.S. naval base as expected, Guantanamo Bay Cuba their destination. That
journey covers about 8,000 miles and is expected to take about 20 hours to complete,

Our Bill Hemmer is at Kandahar airport tonight, and be heard @ tracer fire while the transport plane was taking off. He joins us now from
Kandahar. Bill, if | may, I'd like to start with the Pentagon, which is now saying the gunfire that took place as the plane took off, that it actually
took place later and that it was not directed at the aircraft. You were an eyewitness. What can you tell us?

BILL HEMMER, CNN CORRESPONDENT: Loa, we got those reports again when they came out about 35 minutes ago. This is what we saw.
We saw the C-17 taxiing toward the runway. There was tracer fire then shot up at the north end of the runway on the far side. And again, as the
C-17 turned around and started beading down that runway, tracer fire was seen again.

Here is the confusion and bere is why this is significant. Why was the tracer fire ignited at that time? Did they perceive shots or were they

simply responding to sensors that may have been tripped on the perimeter? The C-17, 2s you mentioned, Lou, took off without incident, But
about 15 minutes after that, there was significant red tracers crisscrossing the runway here. And we also heard several M-16s break out ina

1/15/02 02717

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00900000000170


Carleton, Norman

—__— — od
From: Schultheiss, Heidilynne

Sent: Monday, October 29, 2001 3:49 PM

To: Carleton, Norman, Nickoloff, Peter

Subject: Enron Taps All Its Credit Lines to Buy Back $3.3 Billion of Debt

October 27, 2001

Enron Taps All Its Credit Lines to Buy Back $3.3 Billion of Debt

By FLOYD NORRIS

The Enron Corporation, trying to reassure investors that it has ample liquidity, began to repurchase all its
outstanding commercial paper yesterday, using $3.3 billion it borrowed from banks by depleting its lines of
credit.

An Enron spokesman said that when the commercial paper repurchases are completed the company will retain
more than $1 billion in cash.

The moves did not appear to reassure investors, as Enron's share price fell to another six-year low. Shares traded
as low as $15.04 yesterday, before ending the day at $15.40, down 95 cents.

The move will raise the interest expense for the company, because banks normally charge more than companics
have to pay in the commercial paper market, and because its outstanding debt will rise by the additional $1
billion.

Enron's debt is rated investment grade. But its bonds now trade below investment grade levels, although not so
low that it appears investors fear an early default. But with the bonds trading so low, it is unlikely Enron will be
able to sell more commercial paper.

Enron's stock has been plunging since Oct. 17, shortly after it disclosed that its third-quarter balance sheet,
which has yet to be released, will show a $1.2 billion reduction in shareholder equity as a result of complicated
transactions involving partnerships formerly controlled by Andrew Fastow, who was the company's chief
financial officer until he was replaced on Wednesday.

The stock has lost more than half its value since the earings announcement, and the company has disclosed that
the Securities and Exchange Commission has asked questions about its accounting practices.

Copyright 2001 The New York Ti

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Page | of 1
Carleton, Norman

From: Lori. Santamorena@bpd.treas.gov

Sent: Friday, January 11, 2002 7:48 AM

To: Norman.Carleton@do.treas.gov

Subject: Re: Bloomberg: Bush Task Force to Study Disclosure Rules After

saw the Secretary's interview on CNBC last night..

02730
1/15/02

01300000001339


Carleton, Norman

From: Nickoloff, Peter

Sent: Monday, December 17, 2001 9:48 AM
To: Carleton, Norman; Schultheiss, Heidilyane
‘Subject: Enron and Netting

From ERisk....

Unwinding Enron's Tangled Web

December 12, 2001 Enron's lenders,
counterparties and investors have been quick to estimate their exposure to America’s biggest corporate bankruptcy, but
replacing those estimates with actual losses will take rather longer - and observers suggest two main sources of
uncertainty.

First, the sheer scale of Enron's involvement in the derivatives market promises to be the first real test of the industry's
preferred method od for closing out fansactions when one counterparty goes bankrupt « and there's no certainty that the
Frausiry will find an ally in the US bankruptcy

Despite the best efforts of the International Swaps and Derivatives Association (lsda <http./www.isda .org/index, himi>) to
promote legislation that would give indusiyy pra legal certainty, lawyers are advising concerned counterparties that
their ability to terminate transactions by iting @ net gain or loss is not guaranteed.

Second, the widespread use of Enron's debt os cofatere! in sizucturad credit
htt, com/n {news lysis 2001-08 0 p> transactions means a long wait for holders of

that paper, as Enron's trustees value the company's cenein ‘and determine the level of recoveries.

It doesn't and there. The two issues Badly atrantar a considerable extent, Synthetic collateralised debt obligations (CDOs) - the
structured credit instruments most by Enron's bankruptcy - rely on credit default swaps to pass on exposure
to investors, and credit derivatives body cee is arguably the most legally unproven of all derivative products.

_disparsed? himi> issued by rating agency (SAP <hiip-Jwany standardancooars com>) on the Enron
collapse refiects the difficulty in divining ning the extent of the exposure aon by the e firm's lenders, counterparties and
ees  Crect exposure to Enron likely exceeds the $33 billion on eaty Corp's balance sheet.” A more precise

imate is red.

For investors that have exposure to Enron thr: ‘structured credit, the picture is perhaps the clearest - all of the rating
agencies moved quickly to assess the impact of neon's decries on fhe notes te cover. “We currently expect 20 cents on
the dollar to be recovered,” says Mitchell Lench, mrenieger of '> European CDO team in
London, who confirms that synthetic COOs have been haniest imply because they tended to incorporate exposure to
‘nron on a routine basis

Synthetic CDOs are issued most often by European banks, keen to shift some credit risk to what is usually a small,
sophisticated poo! of investors, he explains - and in that context, Enron was a favourite name because the banks were
‘expected to build the poo! of debt by including representatives from a diverse range of industry sectors, and Enron
continued to be seen as one of the strongest energy companies until very recently.

Grade engi synthetic deals are generally composed of up to a hundred names, all of whom will generally be investment-
ench says that Enron’
Fe dcat and you're losing 80 cents on the dollar, that's

's bankruptcy could be cnown lo prompt a rade of the deal. “If Enron is 1 per cent of
basis points ar oredh enhancement you no longer have,”

Some xposure Evan snd cies! have Since been aot
graced <h Ma 060 netic htmi>, a
them synthetics, ik P’s structured finance of = in New York, that t i total notional value of
the 44 deals exposed to Enron is $79 billion - but the total amount of Enron's exposure included in those deals adds up to
a areietvey small $600 miltion. Despite Enron's Popularity as a component of CDOs, and despite the downgrades suffered
as a result, it is clear that investors in synthetic CDOs generally won't be too worried.

However, S&P also rated six transactions called credit-linked notes (CLNs) says Khakee, and the loss potential here is far
greater - they represent $2.7 billion in direct exposure to Enron. CLNs use a sonar structure to synthetic CDOs: a special-

02879

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products as a dilution of Enron's value, argues the lawyer.

Most significantly, there’s no definite provision for credit default swaps under the existing legislation. “Are they swaps at
all?” she asks. “if not, they don’t fit into any protected category. le could be sitting there with a useless default swap
from Enron - at the same time, they could other obligations which they have to pay in.”

Isda isn’t keen on the suggestion that cross-product netting might not work. “The master agreement is intended to cover al
types of contracts,” says jumme. “Counterparties should be able to net across product types.” She concedes that isda
has been trying hard to get legislation passed "because we need an update of the definitions,” but notes that
although Isda produces the indu: 's lagal documents, it does not offer legal opinions. Anyone wanting to know whether
cross-product netting will work “would get a better idea from a law firm”,

02881

013000000014390


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Enron Credit Exposures Widely Dispersed Through Global Financial System

[i] Coroorates

Publication data:

06-Dec-2001

Reprimed fram RatingsO rect

‘Commentary
Enron Credit Exposures Widely Dispersed Through
Global Financial System

Analyst Teena Azarchs, New York (t) 212-438-7385

Bank anc Insurance Exposures
Oeeremtrees Exposures

The bankruptcy of Enron Corp,, the largest corporate bankruptcy ever, has left
its detritus atomized throughout the global financial system. Credit exposure
to Enron likety exceeds the $33 billion on Enron Corp.'s balance sheet, but
that exposure comes in many forms, not all of which are equally risky. Ina
testimony to the efficiency of the global financial system, that exposure is not
concentrated in any one institution, country, or even industry. The good news
is that while some of the exposures may be material, they do not appear, at
least on the basis of initial reports, to be life threatening to any institution, It
also means that, although Enron was the size of a midsize investment bank
and played pivotal roles in certain financial markets, it does not appear to
have the kind of systemic impact that would give it “loo big to fail” status.
Standard & Poor's has attempted to find all of the shards of exposure, but It
has not been able to fully account for all of that exposure at this time. This
suggests that more pockets of exposure, particularly derivatives exposure, are
yet to be found.

Estimates of the market's exposure to Enron have varied widely. Standard &
Poor's reading of Enron Corp.'s disclosed financials suggests that Enron and
its consolidated entities had $13 billion of on-balance-sheet debt, including
about $9 billion of bonds and $4.5 billion of bank loans, both secured and
unsecured. Securitization vehicles accounted for another $3.9 billion of partly
secured debt, largely in the form of Osprey ang Martin vehicles, as well 23
$400 million of other structured financings, Other related entities might have
additional debt as well. Equally large are Enron's liabilities on derivatives
contracts—energy, power, and other commodities-related forwards, swaps,
and options. At Sept. 30, 2001, these represented more than $19 billion of
exposure held by @ wide variety of institutions, although the value of these
contracts could have changed substantially since. In addition, Enron provided
credit guarantees and credit default protection contracts of an undisclosed
amount, which will be problematic if any of the names in those portfolios
default. Other credit exposure might not have been originated by Enron, but
instead is generated in the form of credit derivatives provided by others in
Enron’s name. Some of these contracts merely transfer Enron exposure to
other counterparties if their purpose was truly to hedge credit risks; otherwise,
they could increase the total amount of Enron exposure.

Bank and Insurance Exposures

The exposure is not concentrated in the banking industry, as it might have
been at one time. The bonds are heid mostly by insurance companies,
pension and mutual funds, and collateralized debt obligation (CDO)
structures, which, in turn, may be held by insurance and banking
organizations. Standard & Poor's estimates that about $3 billion of the debt is
held by structured vehicles, which could result in downgrades for some
synthetic CDO transactions. Citigroup Inc. and J.P. Morgan Chase & Co.
provided $1 billion of bank debt secured by pipelines in the final weeks of
Enron's travails. Unsecured bank debt amounts to $3 billion, much of which is
held by banks worldwide. Unrelated to Enron's own credit are exposures to
the 50% owned Indian subsidiary Dabhol Power Co., which defaulted due to
problems created by other shareholders, but which add to the woes at certain
counterparties like the Australian banks and insurers, which have $1 billion of
Enron and Dabhot debt between them.

file://C:\AWINDOWS\Temporary%20Intemet%20Files\OLK303 1'SPEnron.htm 0 2 8 5 1

Page 1 of 3

W15/02

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401(k) plan participation.

Boxer acknowledged that Enron workers willingly concentrated their investments in Enron's
previously high-flying stock, but suggested that, through the plan lock-down, employees in effect
were forced to buy the company’s stock because they couldn't sell their holdings.

Boxer called for the Internal Revenue Service to redirect the tax breaks Enron Corp. (ENE)
obtained for its contributions to employee retirement accounts to partially reimburse employees
who lost their retirement savings through the company’s 401(k) program.

The legislation Boxer sponsored with Corzine would limit employee 401(k) investments in
company stock to 20%, and it would limit to 90 days the period of time an employer can require its
workers to hold a matching stock contribution before divesting it.

Further, the bill would reduce to 50% the tax deduction an employer can take for its matching
stock contributions. Cash contributions would retain the 100% tax break, Boxer said.

Also, the bill would lower to 35 year of age, with at least five years of company service, the trigger
allowing employees to diversify their investments in employee stock ownership plans.

-By Bryan Lee, Dow Jones Newswires; 202-862-6647;
Bryan. Leegdowjones .com

~

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Page 2 of 2

The executive or executives who assume the operational role Skilling had will largely be seen as the new
heir or heirs apparent to Lay, 59. Enron earlier said it would increase the office of the chairman, which
previously was occupied by Lay and Skilling, to include Lay and two understudies.

“Certainly, there is a hole in the office of the chairman, and we will be addressing that very soon. ! think | told
some people yesterday that we were looking to do something probably in the next couple of days," Lay said.

Lay reiterated that the succession will be internal, but did not elaborate on which executives he would
choose,

MANY GLOBAL ASSETS TO GO

The best way to return Enron's stock to its headier levels will be to get a higher return on capital investment,
he said. Enron hopes to glean billions from a sale of low-yield global assets, which it will then pour into high-
return businesses, Lay said.

“The quickest way to do that is to monetize some of these assets," Lay said. “That doesn't mean we're
going to monetize all of them.”

He said Enron will still be very active in Europe, Japan, Australia and other countries, and may start working
in developing countries at some point in the future.

Lay took more than a dozen questions from the audience, with topics ranging from work-a-day issues like
how close cubicles will be spaced in Enron's new office building to the issue of what recourse there is for
employees who have stock options that are priced in the $80 range.

While he rebuffed a re-pricing of those options because "stockholders hate that," he did say all employees
would be issued a new round of options that are priced at current levels.

Touching on another recent issue, Lay said Enron was in advanced talks to sell Oregon utility subsidiary
Portland General, which was to be sold to utility Sierra Pacificfor $3.1 billion until regulatory issues scuttled
the deal.

“We have another transaction that is pretty far advanced and it might be a transaction where we would even
maintain some ownership interest in that business for some time. But it's not far enough advanced to talk
about right now," Lay said, not revealing the name of the potential buyer.

Asked if Enron's broadband arm would suffer more layoffs if was not successful by year’s end, Lay said he
thought “the odds of that are very, very small.” Lay said 500 people were taken out of Enron's broadband
operation, with about half being laid off and the rest being redeployed within the company.

The underperformance of the broadband business, which coincided with the broad collapse of the
telecommunications market, is among several problems that have dogged Enron lately.

They include a costly payment fight with the Indian government over the $3 billion Dabhol power plant, the
vilification of Enron by California politicians who blame Texas companies for their power crisis, and the
breakup of a marquee video on-demand broadband Internet deal with Blockbuster Inc. (news/quote) (BBI.N).

Answering an employee question, Lay said there was no truth to a rumor that Royal Dutch/Shell RD.AS
(SHEL.L) was planning a hostile takeover of Enron because of the stock's recent weakness.

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Page 6 of 11

GRANGE; Bill probably saw some tracer fire. Was the tracer fire red, was the tracer fire green? A lot of AK-47 fire is green tracers, So, it's
really hard to say. And no one knows if the perimeter was even breached. It may have been just fire. The fire could have been outgoing.

I think it is too eazly to tell, and I think that the security forces there took appropriate action from the rehearsals that they have conducted,
which all units do when they start an operation in an area, by firing mortar flairs, helicopters, launch and check the area net. So it seems very
small, This is one of those incidents that happened almost every day in Vietnam.

DOBBS; General, we have an axiom in the newscraft -- always go with your person in the field. I believe the military has a similar axiom, so it
és interesting and the good news is that no one, certainly, was injured in what did transpire.

General, let's turn to the Philippines; 100 U.S. troops, special forces, arriving there, The first elements of a force estimated to rise to as many as
300. How effective could such a small force be in a significant struggle against terrorism?

GRANGE: What we have in the Philippines is you have terrorist organizations, (UNINTELLIGIBLE) al Qaeda and probably some other
organizations that again are in a guerrilla force environment. In other words, you have a counter-insurgency effort going on with the Filipino
government against an insurgency to the south.

So you have fighters like the Taliban, very similar, with the terrorist nucleus within that. So what they have to do is conduct a counter terrorist
training to assist the Filipino Army taking down this insurgency. That will involve — and it doesn’t involve a lot, but some special forces
trainers (o teach some advance techniques in this, as well as some other support and aviation units to help train and support the Filipino Army
to do this counter-insurgency.

DOBBS: General, would it surprise you to learn that the U.S. military has had a presence in the Philippines before today’s announcements of
the arrival of U_S. Special Forces?

GRANGE: Not at all. I would think they've been there. And any -- any day of the year. Seriously. Any day of the year, you have -- I would say
in over 70 countries, special ops forces, doing normal training with our allies.

DOBBS; | just wanted you to make the point if you would, General, and a3 you always do, the fact is that we have a significant number of
special operations, clements at work around the world, but particularly in certain parts of Asia. Do you expect this to hold at 500 or do you see
a more sizable commitment in the Philippines?

GRANGE: I guess it depends if this is going to be maybe truly the next major operation, You know, limited operations will take place for sure,
Mainly by the Filipino Army I would believe. It may be unilateral hostage rescue or direct assaults by American forces with the permission, of
course, of the Filipino government if that is necessary.

It could grow bigger. It’s pretty big area down there, jungle fighting usually consumes quite a lot of troops.
DOBBS: General, thank you very much, General David Grange.
GRANGE: Thank you, Lou,

DOBBS: Coming up next, we will have more for you on tonight's developing story on the criminal investigation into Baron. We'll be joined by
‘Treasury Secretary Paul O'Neill to discuss this and a number of other issues, We'll be taking an inside look at the corrupt world of money
laundering from what you might consider an unusual source. Stay with us.

(COMMERCIAL BREAK)

DOBBS: The world of moncy laundering, corruption and the role played by big corporations is the subject of a new novel by Stephen Cannell.
‘Cannell knows this material very well. He is the creator of more than 40 television crime series, such as “The Rockford Files" and “The A-
Team” And he's one of the most prolific writers in television, a very astute businessman as well.

‘Through his production company Cannell still owns the rights to 1,000 hours of television series and movies. His new book is called "The
Viking Funeral,” Is a fictional account of a group of rogue LAPD officers, but Cannell's research ts based some very real cases, And we are
going to be turning to him in just a moment, I'm told, to discuss that book and what we have learned about the war on drugs and its relationship

to the against terrorism.

Stephen Cannell are you there? OK, I'm told he's not there, and I want to apologize. Let's tum to the latest developments in the war against
terrorism.

‘Tracer fire, as you heard Bill Hemmer report earlier in this broadcast, heard today as the first plane carrying Taliban and al Qaeda prisoners
took off from Kandahar, Afghanistan, Small arms fire followed. Marines at the airport returned fire, Two Cobra gunships were launched in
retaliation, There are no reports of any American injuries; 20 al Qaeda Taliban prisoners are being flown to the U.S. Naval Base on
Guantanamo Bay Cuba, a trip expected to take about 20 hours.

1/15/02 02720

01300000001329


Page 1 of 2
Carleton, Norman

From: Norman Carleton

Sent: Thursday, August 16, 2001 11:43 PM

To: Norman Carleton; norman.carleton@do.treas.gov
Subject: Enron article (2)

&

AUG 16, 2001

Enron Head Seeks to Reassure Staff
By REUTERS
Filed at 4:48 p.m. ET

HOUSTON (Reuters) - The chairman of Enron Corp. (news/quote) (ENE.N) on Thursday sought to reassure
employees that the energy giant's business was on firm footing as its stock faced a second day of brutal

pressure on Wail Street, following a top executive's shock resignation.

Kenneth Lay told employees at a companywide meeting that Enron's business was strong, despite the
extended pressure on its stock and heir apparent Jeff Skilling's unexpected resignation as president and
chief executive officer.

Lay, who was met with a standing ovation when he took the podium, touched on a wide variety of topics
during the 90-minute meeting during which he took questions and presented financial data he said proves
the company is strong.

“We've got a lot of great stuff going on and we're not getting much credit for it in the marketplace, but we
will," Lay said. “| do think the next several months and few years are going to be great for Enron."

His comments came as Enron's stock saw its worst day in 19 months, closing down $3.40 or 8.5 percent at
$36.85 on the New York Stock Exchange. That brings its losses to roughly 13 percent since Skilling
announced his resignation after the market's close Tuesday.

Lay said he believed the energy giant's stock can sustain a price-to-earnings (P-E) multiple of 25-30 going
forward. It is about 20 right now, based on Wednesday's close,

“| think the current business mode! can easily justify a 25-30 P-E, with the current business model and in the
current market,” Lay said. ““We can't get that 40-50 P-E back until we get our return on capital investment
up."

Enron enjoyed the higher multiples as recently as March, but then the stock began an extended slump that
saw it lose about half its value.

WHO REPLACES SKILLING?
Though Lay took Skilling's duties over, he told employees that he expected to fill the void Skilling left in the

office of the chairman in the next few days. Skilling, 47, was chief operating officer before Lay handed him
the CEO reins in February, and the COO position has remained unfilled since then.

01300000001261

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Page 3 of 3

They include a costly payment fight with the Indian government over the $3 billion Dabhol power plant, the
vilification of Enron by Califomia politicians who blame Texas companies for their power crisis, and the
breakup of a marquee video on-demand broadband Internet deal with Blockbuster Inc. (news/quote) (BBI.N).

Answering an employee question, Lay said there was no truth to a rumor that Royal Dutch/Shell RD.AS
(SHEL.L) was planning a hostile takeover of Enron because of the stock's recent weakness.

1/15/02 02934

01300000001543


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The 7th Annual
Repo & Securities Lending Conference

December 6, 2001
The Roosevelt Hotel, New York, NY

Exhibitand Sponsorship Opportunities Are Available

Pre-Conference Workshop

December 5, 2001
The Association Conference Center, New York, NY

Overview of Standard Funding Documentation

1:00 - 5:30 p.m.
This pre-conference workshop is intended to provide funding
market professionals with a straightforward and substantive review
of the most significant aspects of the Master Repurchase
Agreement, the Master Securities Loan Agreement, the Global
Master Repurchase Agreement and the Cross-Product Master
Agreement, In addition to discussing significant aspects of these
agreements, panelists will also update workshop participants on the
impact of the most recent revisions of certain of the standard
agreements. The workshop, consisting of four one-hour sessions,
will also allow for extensive interaction with experienced
professionals in the repo and securities lending markets.
Master Repurchase Agreement

1:00 - 2:00 p.m.
Carolyn Monroe-Koatz, Vice President, Assistant General
Counsel, J.P, Morgan Chase & Co.
Master Securities Loan Agreement

2:10 - 3:10 p.m.
Steven Kessler, Vice President, Associate Counsel, Goldman,
Sachs & Co.
Global Master Repurchase Agreement

3:20 - 4:20 p.m.
Habib Motani, Partner, Clifford Chance Rogers & Wells
Netting Documentation

4:30 - 5:30 p.m.
Scott Kimmel, Vice President, Lehman Brothers Inc.

Confirmed Exhibitors

Dealogic ICVADP

Decision Software Quant Trading Inc.
Garban,

Program

02895

01300000001504

1/15/02


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Page 2 of 11

to meet its obligations and asked for help securing, boosting up Enron's band rating, We're also told that Secretaries O'Neill and Evans
conducted a quick review, spoke to each other and decided there was nothing the government could or should do. Top Bush administration
officials saying tonight perhaps they should have disclosed word of those conversations a bit earlier, But the White House press secretary, Ari
Fleischer, saying in the end, any investigation will show this administration did absolutely nothing wrong.

(BEGIN VIDEO CLIP)

ARI FLEISCHER, WHITE HOUSE PRESS SECRETARY: What's important bere in the president's opinion is that this needs to be
investigated from a criminal point of view to determine what went wrong with Enron as well as from the Department of Labor to protect the
pensioners who worked for Enron, the employees of Enron, But in addition, it's very important to look at policies to make certain this doesn't
happen to anybody else,

(END VIDEO CLIP}

KING: Again, the administration saying any investigation will prove that when a major friend, a contributor of this president asks for help, the
answer was no. But Democrats say they still want more information on any contacts between Enron, CEO Ken Lay and other top officials with
the president, with the vice president and anyone else, senior officials of this administration, So as the investigations continue, so, Lou, too will
the political fallout.

DOBBS: Jobn, thank you very much. And we will be talking with Treasury Secretary Paul O'Neill here in this broadcast, perhaps Commerce
Secretary Don Evans as well as these events are unfolding and the investigation of the collapse of Enron.

For more now on the criminal investigation of Enron what it could mean for its audit firm, Andersen, we tum to CNN's Susan Candiotti ~
Susan,

SUSAN CANDIOTTL CNN CORRESPONDENT: Good evening, Lou,

With the recusal of the attorney general and his chief of staff, the Justice Department's Enron investigation will now be overseen by Deputy
Attomey General Larry Thompson. The Washington-based task force includes prosecutors based in Enron's hometown, Houstoa, as well as
San Francisco and New York, home to the Stock Exchange and Security Exchange Commission.

National investigations like Enron's are rare because justice doesn’t usually focus on a single company, but an industry like big tobacco. And
the timing is critical when justice is concentrating so many of its resources on the 9/11 investigation and still unsolved anthrax attacks.

And tonight, a disturbing disclosure from Arthur Andersen, which did accounting and consulting work for Enron, The company admitting it
has gotten nid of documents that could be critical to the Enron investigation, Once more, the firm says it doesn't know exactly how many
documents are gone, but calls the number significant, a revelation that has the SEC hopping mad.

Here's part of Arthur Andersen's statement: In recent months, documents including clectronic files related to the Enron engagement were
disposed of or deleted, Millions of documents related to Enron still exist and the firm has successfully retrieved some of the electronic files.

Well, the SEC's enforcement chief, Steven Cutler, not happy, issuing this response: Destruction of documents is obviously an extremely
matter. Documents are an essential ingredicnt in our investigations. The destruction of documents by Arthur Andersen will not deter us from
pursuit of our investigation and will be included within the scope of our investigation.

Now Arthur Andersen says it has told not only the SEC, but the Justice Department and the congressional committees investigating Enron.
During congressional testimony last month, Arthur Andersen's chief auditor said he warned Enron it was involved in, quote, "possible illegal
acts for allegedly withholding information from its own auditors", Now Enron denied that charge.

And this night, we also have late word for you, Lou, that tonight a spokesman for Congressman Billy Tauzin of the House Energy and
Commerce Committee is saying that given the disclosures by Andersen about destruction of documents, he says that the company should be
prosecuted if those documents were destroyed intentionally -- Lou.

DOBBS: Susan, thank you. Congressman Billy Tauzin, who has been mvolved im this investigation on the onset, saying that anyone who did
this through negligence at Andersen should be fired, anyone who did it intentionally should be prosecuted. Susan, thank you very much. Susan
Candiotti from Washington.

The fallout from the collapse of Enron is far reaching of course. Yet another example: Enron has 3,500 subsidiaries; 34 of them already have
filed for bankruptcy protection. I want to tum, if | may now, to Allan Cheroff, who is following this investigation. Just how did we get here,
in your judgment? How has this been spiraling so quickly?

ALLAN CHERNOFF, CNNfn CORRESPONDENT: Weill, Lou, the latest item in terms of these lost documents, apparently it all started with
investigators from Billy Tauzin’s committee. Four of them went down to Houston, were looking for the documents yesterday, And they were
told at the Andersen offices there was a problem. And earlier today, they were informed that in fact, potentially thousands of documents,
primarily electronic, they believe...

1/15/02 02716

01300000001325


The 7th Annual Repo & Securities Lending Conference

11:30-12:30
p.m,

12:30-1:45 p.m.
Introduction

Speaker

1:45 - 3,00 p.m.

filex//C:\WINDOWS\Temporary%20Intemet%20Files\OLK3031 \repo.htm

Kim Olson
Assistant Vice President

Federal Reserve Bank of New York

Page 3 of 6

CONCURRENT SESSIONS: Global Funding Markets

Two break-out panels will address funding market issues in Europe and Asia,

respectively.
Current Issues in European Asian Funding Matters
Funding Markets

Funding markets in Asia

This panel of repo market continue to play a significant
experts, active inthe European —_ role in the global financial
funding markets, will discuss markets. This panel of repo and
major developments affecting securities lending professionals
continental Europe and United _ active in the Asian funding
Kingdom. The key matters that — markets will provide a review of
will be addressed include: (i) the the most significant aspects of
new Basel Capital Accord these markets, and also provide
implications for the European an update on latest
repo markets; (ii) the on-going —_ developments.
integration process of European .
clearing and security settlement Panelists Tom Brady
systems; (iii) the possible impact Managing Director
of proposals to change the Merrill Lynch, Inc.
European regulatory Mark Steffensen
environment for Alternatives Coun sel 7
Trading Systems (ATS); (iv) the
proposed Leopean Directive on Morgan Stanley &
Financial Collateral Co.
Arrangements; and (v) the
possible consequences of the
application of the proposed
Investment Services Directive
(ISD) on the European fixed
income markets.

Lunch

Micah Green

President

The Bond Market Association

The Honorable William S. Cohen

Former Secretary of Defense and U.S. Senator
Collateral Management Issues in the Funding Markets

The tragic events of September 11 have further highlighted the need for effective
management of collateral to ensure liquidity during times of market stress. This p
will focus on what collateral management issues the events of September 11 rais
well as provide an update on the latest developments in collateral management.
Subjects to be discussed include: (i) regulatory issues with regards to effective
collateral management in times of market stress, (ii) changes to the Federal Rese
Payment Systems Risk Policy, (iii) the expansion of GSCC's GCF product (and

02897

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Carleton, Norman

From: Bitsberger, Timothy

Sent: Tuesday, December 18, 2001 5:22 PM

To: Carleton, Norman

Subject: RE: DJ: Senators Aim To Prevent Future Enron-Type 401(k) Problems

this is exactly the background we will need!

~-—-Original Message

From: Carleton, Norman

Sent: Tuesday, December 18, 2001 5:20 PM

To: Cetina, Jil; Bair, Shela; Berardi, Steve; Bitsbenger, Timothy; Ekchner, Matthew; Galondo, Jase; Gross, Jared; Hammer, Vive; Lori

Sanatamorena (E-mat); Nickoloff, Peter; Nowey, Michael; Pletrange’, Fred; Roseboro, Brian; Schultheiss, Heiditynne; Whaley,
Jean; Wiedman, Mark
‘Subject: OD}: Senators Aim To Prevent Future Enron: Type 401(k) Problems

December 18, 2001

Senators Aim To Prevent Future Enron-Type 401(k)
Problems

Dow Jones Newswires

WASHINGTON - Two Senate Democrats unveiled legislation Tuesday that would limit the
amount of company stock employees can hold as part of their 401(k) retirement plans.

The legisiation is a response to the financial collapse of Enron Corp, (ENE), whose employees
lost millions because they had concentrated their 401(k) plan holdings in company stock.

The legislation was announced by senators Barbara Boxer of California and Jon Corzine of New
rsey,

Boxer described the legislation during a Senate Commerce Committee panel hearing Tuesday
featuring testimony from a handful of Enron employees who lost hundreds of thousands of dollars
because their 401(k) plans were primarily invested in Enron stock.

Enron enterad into bankruptcy protection Dec. 2 after questionable accounting practices led to a
historic crash in the company’s equity value, Shares that sold a year ago for more than $80 are
today worth less than a dollar.

Enron's shares had slid to the $20s in October, when the company’s 401(k) plan administrator
"locked down” the program, keeping employees from divesting their Enron holdings.

Witnesses at Tuesday's hearing described how the bulk of the remaining equity crash occurred
during the monthlong lockdown, causing them to lose more money than they would have had their
accounts been unfrozen and they'd been able to sell their holdings.

Sen. Ron Wyden, D-Ore., likened the events to the sinking of the Titanic. Enron "locked the
workers in the boiler room" as the Enron ship sank, Wyden said.

Boxer said Enron may have violated a tax-law provision she authored in 1997 addressing
diversification of 401(k) retirement funds.

The law prohibited companies from requiring employees to purchase company stock as part of

02864

01300000001473


The big question now may be whether Mr. Watson will retain his enthusiasm after his people stud
Enron's trading positions. Enron has always said it hedged its big derivative positions - positions that
can contain huge leverage that does not show up on the balance sheet - but some of that hedging
was with affiliated companies. If big surprises are found, Dynegy could back out of the deal.

There is plenty of blame to go around here, and suits have been filed against Enron, its current and
former official Is, and its auditor, Arthur Andersen. But investors also bear responsibility. Enron's
financial statements were, as Mr. Lay conceded this week, “opaque and difficult to understand.”
Investors and analysts knew they did not know what was going on. They bought anyway.

Enron was viewed as a company that always made its numbers. An old-line gas pipeline company

had been transformed into a brilliant trader that could apply its magic around the world. Investors did
not care how Enron made the numbers. Now, when it is too late, they do.

Tracking: Recipient Delivery Read
‘Whaley, Jean Delivered: 11/16/01 11:17 AM Read: 11/1601 11:23 AM

01300000000058


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02891

1/15/02

01300000001500


“Saying they don't understand it but still recommend it is a slap in the face to remind us how useless analysts are,”
says Robert Olstein, a 35-year Wall Street veteran who runs the $890 million Olstein Financial Alert Fund.

After the market closed for trading on Aug. 14, Skilling, 46, abruptly resigned, citing personal reasons and raising
concems among Investors that dire financial news might be forthcoming.

Falling Stock
Enron stock dropped as much as $6, or 13 percent, the following day, ending the week at $36.67.

Analysts insisted nothing was awry. “There is nothing wrong with the company,” UBS's Barone said after meeting with
Lay, who had once again become Enron's CEO. "There is no other shoe to fall -- and no charges to be taken." He
kept his “buy” rating on the stock

Lehman's Gross also met with Lay and other senior managers on the night of Aug. 18. “The Enron machine is in top
shape and continues to roll along," Gross wrote to investors the next day.

He didn't see a short-term catalyst to boost the stock — then trading at $36.85 a share — yet he urged investors to get
more shares, maintaining his “strong buy" recommendation and a 12-month price target of $72.

CSFB analyst Curt Launer wrote a brief note to clients after what he described as “intensive meetings” with
management. He said there was “no truth to any of the speculations” and kept his 12-month target of $84 and his
“buy” recommendation.

Enron 8 ‘Buy’

Of the 22 analysts who covered Enron, 19 rated the stock a “buy” as of mid-October 2001. That's when, one after
another, disclosures spilled out of the Houston-based company: Enron's partnerships had hidden billions of dollars in
debt; years of profits had been exaggerated; and the U.S. Securities and Exchange Commission was investigating
Enron's partnerships with affiliates

The disclosures dashed Enron's credibility with jenders and drove it to bankruptcy.

‘On Nov. 24, with Enron stock at less than $7 -- down more than 90 percent from its high in August 2000 — Goldman's
Fleischer downgraded Enron to “market perform,” Wall Street parlance for “hold. * He didn’t respond to several phone
calls.

Easier Decision

Investors say Fleischer’s decision to downgrade the stock was made easier by his firm's failure to win a role advising
Enron on its planned sale to Dynegy. “| wouldn't doubt at all that being dropped from the “recommended list’ had
something to do with not winning the advisory business,” says Phelps,

Fleischer and Goldman spokespeople didn't return phone calls.

To many investors, there were signals that should have tipped off analysts that something was amiss. In December
2000 and January 2001, 10 top Enron executives gold more than $73 million in stock. Lay and Skilling together sold
stock valued at more than $17.6 million, according to the Washington Service, which tracks insider stock sales and
purchases.

Insider sales are often a strong sign to investors that something's wrong. Timothy Ghriskey, who at the time was a
fund manager at Dreyfus Corp., sold about 1.55 million Enron shares in late 2000. “It wasn't much of an endorsement
that they were bailing out too," he says. “I didn't see much upside in the stock and figured that with the valuation so
high, there was a lot of downside if they failed to deliver."

Wake-Up Call for Analysts

Coxe and other investors say Enron's fature should provide a wake-up call for analysts, who pay too little attention to
balance sheets. “'| pay the Street lots of commission dollars and expect that analysts are reading the

‘ 02875

01300000001484


Carleton, Norman

— —__——_ —__—_—_—_—
From: Gabilondo, Jose

Sent: Wednesday, December 05, 2001 5:47 PM

To: Carieton, Norman

Subject: Enron Corp. Stock Chart

Norman:

This should work. | dragged this icon on to my shortcut screen, so that | just need to hit without separately
accessing the Internet. Also, below is the agenda for the repo ‘conference. Let me know if you're interested in any topic in
particular that | should focus on.

José
rven Comp. Stock repo hae
Cran rere

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Page 2 of 3
up."

Enron enjoyed the higher multiples as recently as March, but then the stock began an extended slump that
saw it lose about half its value.

WHO REPLACES SKILLING?

Though Lay took Skilling's duties over, he told employees that he expected to fill the void Skilling left in the
office of the chairman in the next few days. Skilling, 47, was chief operating officer before Lay handed him
the CEO reins in February, and the COO position has remained unfilled since then.

The executive or executives who assume the operational role Skilling had will largely be seen as the new
heir or heirs apparent to Lay, 59. Enron earlier said it would increase the office of the chairman, which
previously was occupied by Lay and Skilling, to include Lay and two understudies.

“Certainly, there is a hole in the office of the chairman, and we will be addressing that very soon. | think | told
some people yesterday that we were looking to do something probably in the next couple of days,” Lay said.

Lay reiterated that the succession will be internal, but did not elaborate on which executives he would
choose.

MANY GLOBAL ASSETS TO GO 0 2 9 3 @)

The best way to return Enron's stock to its headier levels will be to get a higher retum on capital investment,
he said, Enron hopes to glean billions from a sale of low-yield global assets, which it will then pour into high-
retum businesses, Lay said.

“The quickest way to do that is to monetize some of these assets,” Lay said. “That doesn't mean we're
going to monetize all of them.”

He said Enron will still be very active in Europe, Japan, Australia and other countries, and may start working
in developing countries at some point in the future.

Lay took more than a dozen questions from the audience, with topics ranging from work-a-day issues like
how close cubicles will be spaced in Enron's new office building to the issue of what recourse there is for
employees who have stock options that are priced in the $80 range.

While he rebuffed a re-pricing of those options because “stockholders hate that,” he did say all employees
would be issued a new round of options that are priced at current levels.

Touching on another recent issue, Lay said Enron was in advanced talks to sell Oregon utility subsidiary
Portland General, which was to be sold to utility Sierra Pacificfor $3.1 billion until regulatory issues scuttled
the deal.

“We have another transaction that is pretty far advanced and it might be a transaction where we would even
maintain some ownership interest in that business for some time, But it's not far enough advanced to talk
about right now," Lay said, not revealing the name of the potential buyer.

Asked if Enron's broadband arm would suffer more layoffs if was not successful by year's end, Lay said he
thought "the odds of that are very, very small." Lay said 500 people were taken out of Enron's broadband
operation, with about half being laid off and the rest being redeployed within the company.

The underperformance of the broadband business, which coincided with the broad collapse of the
1/15/02

01300000001539


‘The 7th Annual Repo & Securities Lending Conference Page 5 of 6

Member: $895 (additional registrants from the same firm are $695 each)
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charge, on cancellations received in writing on or before Friday, November 30,
2001. No refunds will be issued on cancellations after this date. Substitutes are
welcome at any time.

Hotel Reservations: For your convenience, a limited number of guest rooms have
been reserved at the Roosevelt Hotel, 45 East 45th Street, New York City. For hotel
reservations, please call the Roosevelt Hotel at 888.833.3969, Be certain to mention
you are attending The Bond Market Association's conference.

For further information, please call Mary Garcia at (212) 440-9429.

Registration Form

Member (first registrant): $895
T Additional registrants from same firm: $695

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T Additional registrants from same firm: $895
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Individual
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Your Name i}

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Phone a Fax
filey/C:\WINDOWS\Temporary%20Internet%20Files\OLK303 | \repo-htm 0 2 89 9 Vis/o2

01300000001508


From: Schultheiss, Hellas

Sent: Monday, October 2001 4:02 PM
To: Norman; Nickoloff, Peter
Subject: Sinvore Dis the Vase @o at Enron?
October 23, 2001

Where Did the Value Go at Enron?
By FLOYD NORRIS

What really went on in some of the most opaque transactions with insiders ever seen?

Wall Street has been puzzling over that since Enron released its quarterly carnings a week ago. Yesterday shares
in Enron plunged $5.40, to $20.65, after the company said that the Securities and Exchange Commission was
looking into the transactions.

The reaction was in some ways puzzling. Given the questions that have been raised since the carnings
announcement - some of them prominently featured in The Wall Street Journal - it was likely that the S.E.C.
would begin a preliminary inquiry.

Whether it will go farther than that is not clear, but if nothing else the slide in Enron shares over the last week
shows the hazards that can confront a company that allows word of a major reduction in its balance sheet value
to dribble out. Enron's shares rose 67 cents, to $33.84, last Tuesday, as investors first reacted to the earnings
announcement. But since then they have fallen $13.19, or 39 percent.

The $1.2 billion reduction in shareholders’ equity was not mentioned in a news release Enron issued on its

uarterly earnings last Tuesday. It was briefly mentioned in a conference call with analysts, but many of the
listeners seem to have not noticed that, wrongly thinking Kenneth L. Lay, Enron's chairman and chief executive,
was referring to a $1 billion write-off that was disclosed in the earnings release.

When questions were asked in the following days, the explanations were less than thorough. Enron explained
that the reduction in shareholders’ equity was related to the termination of "structured finance vehicles"
involving partnerships that had been controlled by the company's chief financial officer.

"Both the debt and the equity people are looking for more clarity about how the company goes about its
business," said Ralph Pellecchia, a credit analyst at Fitch Investors Service. He added that the issue of the
company’s “credibility related to this transaction really seems to have a life of its own."

Enron declined yesterday to allow any officials to be interviewed about its financial reports. But last night it
said Mr. Lay would hold another conference call with investors at 9:30 a.m. today.

The company’s earlier disclosures regarding the partnerships baffled many analysts. They referred to such things
as "share settled costless collar arrangements” and “derivative instruments which climinated the contingent
nature of existing restricted forward contracts." The disclosures said the company entered into the transactions
"to hedge certain merchant investments and other assets.”

It appears that Enron was able to report profits from them, even though the underlying asscts included
investments that declined in value. The Wall Street Journal, citing reports the partnerships made to institutional
investors, has reported the partnerships did well enough to make large cash distributions to their investors,
Enron officials in recent days have refused to discuss the arrangements in any detail.

One of the questions that the S.E.C. may look into is whether the termination of those transactions should have
been treated as a balance sheet item, or whether it should have been taken as a loss that affected reported
eamings. An S.E.C. spokesman declined to comment.

Under accounting rules, a company’s transactions in its own shares cannot produce profits or losses, whatever

02627

01300000001236


THE slump in the company’s shares accelerated after Enron revealed the fal] in its shareholders’ equity, On
Wednesday, the company forced out its chief financial officer, Andrew S, Fastow, who is at the center of the
controversy over Enron's confusing finances. The company, which six months ago seemed to be reaping billions
of dollars California's energy crisis, today faces a potential cash crunch,

The surprise about shareholder equity inflamed investors’ smoldering concem about Enron's opaque financial
statements. Now, with Wall Street analysts and bond-rating agencies demanding more information about the
complex transactions that have fueled the company’s profits, Enron has been reduced to issuing news releases
assuring investors that it has adequate access to cash.

Enron does not appear to be in immediate danger of running out of cash. On Thursday, the company drew down
a $3.3 billion credit line it had previously arranged with a group of banks led by Citigroup and J. P. Morgan
Chase, which have each extended at least $400 million. But because of Enron's importance in the natural gas
and electricity markets, industry experts say that any problem at the company could disrupt energy trading
nationwide.

The supply of natural gas and electricity would probably not be affected even if the company failed, because
Enron is mainly a trader, rather than a producer, of energy. But a crisis at the company might increase the
volatility of energy prices, which have swung wildly in the last year.

Philip K. Verleger Jr., an energy- markets economist, emphasized that he thought Enron would survive this
crisis. But he said it was not clear what would happen if Enron ran out of cash or if traders that use the
company's EnronOnline Internet trading marketplace defaulted on their obligations.

“You suddenly have all these positions they have taken on there - are they good? Are the firm's hedges good?
What's the situation?" Mr. Verleger said. "It's got everyone scared."

In the short run, Enron's credit rating may be its biggest problem. If the company's rating falls below investment
grade, Enron could be forced to issue tens of millions of shares of stock to cover loans that it has guaranteed.

ut creating new shares would make the shares that already exist less valuable, because those shares would no
longer represent full ownership of the company.

A drop in the company’s credit rating could also prompt other energy traders and producers to back away from
doing business with Enron, hurting the company’s sales and profits.

Enron's credit rating stands several notches above the critical point. But its bonds, which are publicly traded,
have fallen so low that they are now offering interest rates of almost 10 percent, comparable with many junk
bonds. Two of the three major credit-rating agencies, Moody's Investors Service and Fitch Investors Service,
have put Enron's bonds on review for possible downgrades.

"The issue that's in the front of everybody's mind right now is credit," said Mark Gurley, senior vice president
and general manager for trading at Aquila Inc., one of the nation's largest energy traders. Aquila is based in
Kansas City, Mo,

For now, Aquila and other major cnergy traders and producers, including Reliant Energy, the El Paso
Corporation, and Dynegy are continuing to do business with Enron. And Mr. Gurley said that Enron's own
trading in the electricity and natural gas markets did not suggest the sort of frenzied selling reminiscent of the
collapse of Long-Term Capital Management in 1998.

sihey haven't done anything trading-wise that gives me any indication they are closing their books down,” he
Still, some executives at other companies said they were looking more carefully at transactions with Enron,

especially long-term contracts. They also said risk-management and credit officers were calling each other
regularly to discuss the situation.

Mark Palmer, an Enron spokesman, said on Friday that no energy- trading company had stopped doing business
with Enron. He declined to say whether any of the company's trading partners had suspended or altered credit
terms. He said the company was continuing to see normal volumes of business.

, 02631

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00900000000038


Too big to fail?

Is Enron too big and too important to be allowed to fail? Philip Verleger, an energy economist, thinks that
Enron is so central to energy markets that it could not easily be replaced. Enron's rivals mostly disagree,
unsurprisingly.

But even Enron's worst enemies do not (yet) expect the firm to die from its current crisis. Most traders
seem keen that it should live. "Nobody likes to see a wholesale trader disappear,” says one. They admire
Enron's armies of traders and their ability to do deals. EnronOnline is one of the Internet's few success
stories, assuming its huge trading volumes do indeed generate big profits, as the firm claims.

Enron’s, and the financial system's, problems could worsen if doubts grow about its ability to meet its
obligations. On the surface it is rich In assets, If not cash. But Its lack of transparency leaves
uncomfortable room for doubt. In June 2000, The Economist challenged Mr Lay to reply to accusations of
arrogance, high-handedness and a propensity to push the limits of the law. His response was revealing. To
show that such charges were baseless, he pointed to another firm unfairly maligned by critics: Drexel
Burnham Lambert, an investment bank that rose from obscurity to market prominence in the junk-bond
boom of the 1980s. Drexel was accused of arrogance, he groused, but it was only being "very innovative
and very aggressive", Drexel was not bailed out: Michael Milken, its star, ended up in jail, and Drexel
collapsed In a heap of bad debts and ignominy.

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Page | of 7
Carleton, Norman

From: Lori.Santamorena@bpd.treas.gov
Sent: Friday, January 11, 2002 1:52
To: norman.carieton@do.treas.gov

CNN

SHOW: CNN THE POINT 20:30
January 10, 2002 Thursday 8:30 PM Eastern Time

‘Transcript # 01 1000CN.V68

SECTION: News; International

LENGTH: 4186 words

HEADLINE: Enron Political Repercussions Just Beginning

GUESTS: Mark Jucrgensmeyer, Eric Margolies, Jon Corzine, Arianna Huffington, Peter Coy, William Bradley
BYLINE: Catherine Crier, Sheila MacVicar

HIGHLIGHT: Guests discuss the collapse of Enron.

BODY:
‘THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

(BEGIN VIDEO TAPE)

ANNOUNCER:

THE POINT, with Catherine Crier,

He's in jail. But others got away, and could try again. Tonight, why investigators have decided the alleged shoe bomber didn’t act alone,

UNIDENTIFIED MALE; The combination of materials in the device and the priming mechanism appears to be quite unusual and
sophisticated, ANNOUNCER; Flashpoint: where are the others?

It was the biggest bankruptcy in U.S. history,

UNIDENTIFIED MALE: Each floor at the -- at the Enron building had a floor meeting, Some floors were told you have 30 minutes and get
out.

ANNOUNCER; Thousands Jost their retirement savings. And the political repercussions are just beginning.

UNIDENTIFIED MALE: What's important here in the president's opinion is that this needs to be investigated from a criminal point of view to
determine what went wrong with Enron.

1/15/02 02 708

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Page 2 of 3
“| think the current business model can easily justify a 25-30 P-E, with the current business model and in the
current market,” Lay said. ‘We can't get that 40-50 P-E back until we get our return on capital investment
up.”

Enron enjoyed the higher multiples as recently as March, but then the stock began an extended slump that
saw it lose about half its value.

WHO REPLACES SKILLING?

Though Lay took Skilling's duties over, he told employees that he expected to fill the void Skilling left in the
office of the chairman in the next few days. Skilling, 47, was chief operating officer before Lay handed him
the CEO reins in February, and the COO position has remained unfilled since then.

The executive or executives who assume the operational role Skilling had will largely be seen as the new
heir or heirs apparent to Lay, 59, Enron earlier said it would increase the office of the chairman, which
previously was occupied by Lay and Skilling, to include Lay and two understudies.

“Certainly, there is a hole in the office of the chairman, and we will be addressing that very soon. | think | told
some people yesterday that we were looking to do something probably in the next couple of days," Lay said.

Lay reiterated that the succession will be internal, but did not elaborate on which executives he would
choose.

MANY GLOBAL ASSETS TO GO

The best way to return Enron's stock to its headier levels will be to get a higher retum on capital investment,
he said. Enron hopes to glean billions from a sale of low-yield global assets, which it will then pour into high-
return businesses, Lay said.

“The quickest way to do that is to monetize some of these assets,” Lay said. “That doesn't mean we're
going to monetize all of them.”

He said Enron will still be very active in Europe, Japan, Australia and other countries, and may start working
in developing countries at some point in the future.

Lay took more than a dozen questions from the audience, with topics ranging from work-a-day issues like
how close cubicles will be spaced in Enron's new office building to the issue of what recourse there is for
employees who have stock options that are priced in the $80 range.

While he rebuffed a re-pricing of those options because "stockholders hate that,” he did say all employees
would be issued a new round of options that are priced at current levels.

Touching on another recent issue, Lay said Enron was in advanced talks to sell Oregon utility subsidiary
Portland General, which was to be sold to utility Sierra Pacificfor $3.1 billion until regulatory issues scuttled
the deal.

“We have another transaction that is pretty far advanced and it might be a transaction where we would even
maintain some ownership interest in that business for some time. But it's not far enough advanced to talk
about right now," Lay said, not revealing the name of the potential buyer.

Asked if Enron's broadband arm would suffer more layoffs if was not successful by year’s end, Lay said he

thought “‘the odds of that are very, very small." Lay said 500 people were taken out of Enron's broadband
operation, with about half being laid off and the rest being redeployed within the company.

vise 02925

01300000001534


Page 2 of 3

Enron enjoyed the higher multiples as recently as March, but then the stock began an extended slump that
saw it lose about half its value.

WHO REPLACES SKILLING?

Though Lay took Skilling's duties over, he told employees that he expected to fill the void Skilling left in the
office of the chairman in the next few days. Skilling, 47, was chief operating officer before Lay handed him
the CEO reins in February, and the COO position has remained unfilled since then.

The executive or executives who assume the operational role Skilling had will largely be seen as the new
heir or heirs apparent to Lay, 59. Enron earlier said it would increase the office of the chairman, which
previously was occupied by Lay and Skilling, to include Lay and two understudies.

“Certainly, there is a hole in the office of the chairman, and we will be addressing that very soon. | think | told
some people yesterday that we were looking to do something probably in the next couple of days," Lay said.

Lay reiterated that the succession will be internal, but did not elaborate on which executives he would
choose.

MANY GLOBAL ASSETS TO GO

The best way to retum Enron's stock to its headier levels will be to get a higher return on capital investment,
he said. Enron hopes to glean billions from a sale of low-yield global assets, which it will then pour into high-
return businesses, Lay said.

“The quickest way to do that is to monetize some of these assets,” Lay said. “That doesn't mean we're
going to monetize all of them."

He said Enron will still be very active in Europe, Japan, Australia and other countries, and may start working
in developing countries at some point in the future.

Lay took more than a dozen questions from the audience, with topics ranging from work-a-day issues like
how close cubicles will be spaced in Enron's new office building to the issue of what recourse there is for
employees who have stock options that are priced in the $80 range.

While he rebuffed a re-pricing of those options because "stockholders hate that," he did say all employees
would be issued a new round of options that are priced at current levels.

Touching on another recent issue, Lay said Enron was in advanced talks to sell Oregon utility subsidiary
Portland General, which was to be sold to utility Sierra Pacificfor $3.1 billion until regulatory issues scuttled
the deal.

“We have another transaction that is pretty far advanced and it might be a transaction where we would even
maintain some ownership interest in that business for some time. But it's not far enough advanced to talk
about right now,” Lay said, not revealing the name of the potential buyer.

Asked if Enron's broadband arm would suffer more layoffs if was not successful by year's end, Lay said he
thought “the odds of that are very, very small." Lay said 500 people were taken out of Enron's broadband
operation, with about half being laid off and the rest being redeployed within the company.

The underperformance of the broadband business, which coincided with the broad collapse of the
telecommunications market, is among several problems that have dogged Enron lately.

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00900000000144


Carleton, Norman

From: Schultheiss, Heidilynne

Sent: Monday, October 29, 2001 3:57 PM

To: Carleton, Norman; Nickoloff, Peter

Subject: Enron Ousts Finance Chief as S.E.C. Looks at Dealings

October 25, 2001

Enron Ousts Finance Chief as S.E.C. Looks at Dealings
By FLOYD NORRIS

The Enron Corporation, its stock battered by a sudden loss of investor confidence, yesterday ousted its chief
financial officer, Andrew S. Fastow, whose involvement in complicated transactions with Enron has drawn the

scrutiny of the Securities and Exchange Commission.

"In my continued discussions with the financial community, it became clear to me that restoring investor
confidence would require us to replace Andy as C.F.O.," Kenneth L. Lay, Enron's chairman and chief executive,
said in a statement announcing the change. Only one day before, Mr. Lay had told investors in a conference call
that he and the Enron board “continue to have the highest faith and confidence in Andy."

The company said that Mr, Fastow had taken a leave of absence, but it also named his successor, Jeffrey
McMahon, the head of Enron's industrial markets group and a former corporate treasurer.

Enron said none of the officials were available for interviews last night.

The move came after the close of trading on the New York Stock Exchange, where Enron’s shares fell $3.38, to
$16.41. The price has been cut in half since Oct. 16, when Enron reported its third-quarter earnings. A $1.2
billion reduction in shareholder equity brought on by ending some relationships with partnerships that Mr,
Fastow had headed was not disclosed in the earnings news release. Mr, Lay briefly mentioned it in the
conference call that followed, but some analysts thought he was referring to a separate $1 billion write-off that
was disclosed in the earnings document, and were angered when they later learned about it.

On Tuesday, when both Mr, Fastow and Mr. Lay discussed the company with analysts on the conference call,
neither was willing to discuss details of the transactions between Enron and the partnerships formerly controlled
by Mr, Fastow, Mr. Lay cited the S.E.C. inquiry in declining to discuss the details of the transactions.

The fact the transactions took place has been known for a year, but Enron's disclosures have been widely
criticized for being impossible to understand.

By structuring the deals as involving forward commitments to deliver Enron stock, it appears that Enron was
able to assure that losses on them would not lead to reported losses, but instead to reductions of shareholder
equity that had no effect on the income statement. That is one of the issues the S.E.C., whose inquiries were
disclosed Monday by the company, is expected to address.

Concerns have also grown this week over whether Enron will face losses from complicated financing strategies
that kept billions of dollars of debts off its balance sheet but left the company responsible for paying - either in
cash or with stock - if things went wrong. On Tuesday, Mr, Fastow assured investors that the company "expects
to continuc to have sufficient liquidity to meet normal obligations," and said it had bank credit lines that were
more than adequate,

Mr. Fastow was viewed as one of the architects, with Jeffrey K. Skilling, the former Enron chief executive who
resigned in August, of the change in business strategy that tumed Enron from a gas-pipeline company into a an
energy trading powerhouse that developed a large Wall Street following. Its stock price peaked in the summer
of 2000 at $90,75.

According to a person close to the company, while Mr. McMahon, Mr. Fastow’s successor, was Enron's
treasurer, he told Mr. Skilling, who at the time was the chief operating officer, that he thought the partnerships

02638

01300000001247


Mr. Lay said that no action was needed but declined to address details. Eventually he cut off Mr, Grubman. "I
know you're trying to drive the stock price down, and you've done a pretty good job of it," Mr. Lay said. "But
let's move on to the next question."

Mr. Fastow said the company was having no problem issuing commercial and had $1.85 billion in such
debt outstanding. He said it was backed by $3.35 billion in bank lines of credit, of which $1.75 billion will
expire next May if it is not renewed.

Mr. Lay said he was sorry about "the misunderstanding” that resulted when his brief mention of the $1.2 billion
reduction in shareholder equity in a conference call last weck was not noticed by some analysts. That reduction
would have been apparent if the company had released its balance sheet with the camings report, but it did not.
He said the company would consider releasing balance sheets with earnings reports in the future, but made no
promises.

The large reduction in shareholder equity did not affect reported earnings, and so was not in the earnings
release. But it raised concems that some of the sophisticated financing techniques used by the company might
be effectively keeping losses off the earnings statement. The S.E.C, is expected to look into whether the
accounting for that transaction was correct.

After one questioner on the call said it would be casier to understand Enron if it released financial statements for
the special purpose vehicles that were set up to enter into such transactions as Marlin, Mr. Lay said the company
“will look into providing” such statements.

2 02641

01300000001250


Page 2 of 2

problem issues" are behind the departure. There will be "no change in the performance or outlook of the company going
forward," he added.

He also said the company was on track to meet analysts' earnings expectations, which are about $1.80 a share this year
and $2.15 next year.

On the call, Mr. Skilling said that "in general there have been a lot of issues" that have buffeted the company this year,
but he said that he believed Enron had already surmounted most of them. “Now is the time” to step down, he said,
“because | think we've got a lot of these things behind us."

Nonetheless, the move jolted analysts, who, despite the stock's recent slide and the company's other problems, saw Mr.
Skilling as the unquestioned leader to follow Mr, Lay.

In after-hours trading, shares of Enron fell about 8 percent, to $39.55, That fall follows a plunge of almost 50 percent
since January in the stock, which had closed in regular trading at $42.93, up 78 cents. The news of the executive
changes came after the market closed.

“I'm surprised and I'm stunned,” said Philip K. Verleger, an energy economist with the Brattle Group, a consulting firm
in Cambridge, Mass, "Skilling was the guy who executed the growth in the trading business."

Investors have become increasingly concemed that a surge in new power plant construction will lead to a glut of
electricity within a few years and lower the value of Enron's role as a middleman between plant owners and electricity
users. In addition, the company’s efforts to enter the water business have fared poorly, and its broadband trading
operation has become a cash drain.

Mr, Skilling's promotion carly this year came after several crucial Enron executives resigned. These included Rebecca
Mark, who at one time was considered a rival for the top job.

Ms. Mark became chief executive of the Azurix Corporation (news/quote) in 1999 after Enron spun off the company, its

global water business. But its financial performance was disappointing, and Ms. Mark left the company last year. Enron
later agreed to buy back Azurix stock for less than half what public shareholders had paid,

02651

1/15/02

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Page 3 of 7

CRIER: When we talk about analyzing the ~- the explosive material and one being a military substance, one that the Israelis had discovered
through the Hamas bombing, itis - it stil sounds ltke this is some great revelation to investigators, be it the CIA or those over in Europe, atl
that's a bit frightening.

JUERGENSMEYER: Yeah, it's...

CRIER: tn other words, the premise being if they've looked at this before, there .- somebody has been making these sorts of combinations, why
would this be so new, 30 fresh?

JUERGENSMEYER: Weil, I don't think it's new to the people who have studied the al Queda network closely, but [ think it is shocking to
those of us who think that now that the war in Afghanistan seems to be over, that there is still these cells operating out someplace that we don't
know about.

‘The other thing that's very interesting is that this is not the usual suspect. This is not a Middle Eastern male between the ages of 16 and 30 that
we seem to have targeted as our prime suspect for international terrorism. This is a guy of a different background, a different ethnic
background, resident of London.

Alll this shows ¢hat the unrest against America has a kind of larger show of strength of groups that would like to do America in in some way ~
some loosely associated with al Qaeda, others more strongly -- is a much broader net than we had previously thought.

CRIER; On the other hand, Enic, this -- this guy doesn't strike me as a rocket scientist. This -- the Reid fellow. Does he seem like someone who
would be integral to a network who might be participating in the building of explosives and the blowing up of a plane or possibly an underting
of sorts’?

ERIC MARGOLIES, AUTHOR: Catherine, he docs not fit any of the normal patterns. In fact, to me, Reid looks ~~ fits the pattern of being
your typical drug mule, that is, somebody who travels around hiding or smuggling drags. And the pattern of his travels suggest that strongly,
the places he went to.

The fact he worked as a cook and an incense salesman, supposedly. Yet be went to Israel, he went to Pakistan. He may have been in
Afghanistan, He traveled around Exrope with cash -- suggests a criminal. And in fact, he bad 4 criminal background.

Now, I've spent a good deal of time with — with Islamic militants in Pakistan and in Kashmir and other parts of the Muslim world. And he is
totally atypical, These are not criminals, petty criminals, a3 he was, These are -- are militant, committed people.

CRIER; But Eric, back up just a minute with your analysis before you move on, And that és criminal, I don't know about a criminal record. But
traveling with cash to Afghanistan, to Uzbekistan, even to Israel and across Europe, all of that could certainly be correlated with the terrorism
‘we've seen.

MARGOLIES: Yes, it's -- it could very truly. But he’s mot the type of person that the terror or terrorist groups of the extremist groups would
normally pick. He's very obvious.

CRIER: Wouldn't that be a brilliant plan, though? Wouldn't that be brilliant?
UNIDENTIFIED MALE; Yeah, what a perfect person to choose.

CRIER: Read all this stuff ~ read all this stuff about the fact that they want to come into the United States. Here devout Muslims are wearing
Wester clothes, they're drinking in strip bars, for heaven's sakes. It doesn’t seem so far-fetched that they begin to reach out,

MARGOLIES: No, no not so, Catherine. Because when he was stopped by the Israelis, for example, he stood out like a sore thumb, He's as tall
— almost as Osama bin Laden.

He looked like a wild man, an enrage, is the French would call him. He had Islamic texts in his backpack. And they — so this ~ he wasn’t trying
to sort of hide in plain sight. So the best theory is that somchow he was same poor sort of very unintelligent or retarded person who was
somehow convinced to go and go on a suicide raid for reasons we still don’t understand.

CRIER: Well, let me ask you about that, Mark. Trying to understand the reasons. They have made some correlation with Moussaoui, who is
Preparing to stand trial bere in the United States because they went to the same mosque, apparently, for a time period it London, There may be
even some telephonic links, I'm not sure. But they seem to be trying to tie him in through that.

JUERGENSMEYER: Yes, and what an excellent choice to make, somebody who was somewhat out of the box. I mean, we've assumed that
there would be no women involved. But is it entirely impossible that maybe one of the next carriers of one of these weapons might be a
woman? Might be a bland, blue-eyed woman? Somebody that you might not at all expect?

T think part of the extraordinary character of this kind of war, this kind of struggle, is it involves a movement that is diverse, 2 movement that

1/15/02 02710

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Page 2 of 2

executive.

On a conference call, Mr. Skilling said he could not "stress enough that this has nothing to do with Enron.” He added
that "the reasons for leaving the business are personal, but I'd just as soon keep that private.”

Mr. Skilling, who is divorced, has joint custody of three teenage children — a daughter, 17, and two sons, 14 and 11 —
with his ex-wife. Mr. Skilling, who will leave the board but will serve as a consultant to the company, will not receive
any severance package because his departure is voluntary, Mr. Lay said.

Since May 2000, Mr. Skilling has sold at least 450,000 Enron shares worth at least $33 million, according to Securities
and Exchange Commission filings. He stil! owns about 1.1 million shares, the filings show.

“Absolutely no accounting issue," Mr. Lay told analysts, “no trading issue, no reserve issue, no previously unknown
problem issues” are behind the departure. There will be "no change in the performance or outlook of the company going
forward,” he added.

He also said the company was on track to meet analysts’ earnings expectations, which are about $1.80 a share this year
and $2.15 next year.

On the call, Mr. Skilling said that "in general there have been a lot of issues” that have buffeted the company this year,
but he said that he believed Enron had already surmounted most of them. "Now is the time" to step down, he said,
“because | think we've got a lot of these things behind us.”

Nonetheless, the move jotted analysts, who, despite the stock's recent slide and the company's other problems, saw Mr.
Skilling as the unquestioned leader to follow Mr. Lay.

In after-hours trading, shares of Enron fell about 8 percent, to $39.55. That fall follows a plunge of almost 50 percent
since January in the stock, which had closed in regular trading at $42.93, up 78 cents. The news of the executive
changes came after the market closed.

“I'm surprised and I'm stunned,” said Philip K. Verleger, an energy economist with the Brattle Group, a consulting firm
in Cambridge, Mass. "Skilling was the guy who executed the growth in the trading business.”

investors have become increasingly concerned that a surge in new power plant construction will lead to a glut of
electricity within a few years and lower the value of Enron's role as a middleman between plant owners and electricity
users. In addition, the company's efforts to enter the water business have fared poorly, and its broadband trading
operation has become a cash drain.

Mr. Skilling's promotion early this year came after several crucial Enron executives resigned. These included Rebecca
Mark, who at one time was considered a rival for the top job.

Ms. Mark became chief executive of the Azurix Corporation (news/quote) in 1999 after Enron spun off the company, its
global water business. But its financial performance was disappointing, and Ms. Mark left the company last year. Enron
later agreed to buy back Azurix stock for less than half what public shareholders had paid.

02928

01300000001537

1/15/02


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From: Schultheiss, Heidilynne

Sent: Wednesday, Jani 02, 2002 9:41 AM
To: Carleton, Norman; Nickoloff, Peter
Subject; ABI ENRON UPDATE

ENRON UPDATE

Enron DIP Hearing Delayed

The hearing over Enron Corp.'s $1.5 billion debtor-in-possession (DIP) financing package has been delayed
until Jan. 30 because the bankrupt Houston energy trader needs more time to assemble a business plan,
according to The Daily Deal. The hearing on the DIP had been scheduled for Jan. 7, but the sources said it
didn’t make sense to get the final approval on the funding package until a business plan is in place. The plan
would likely rely on the proceeds from the forthcoming auction in which Enron is selling a majority of its
trading business. Enron had been granted approval on Dec. 4 to use $250 million of the DIP - being led by J.P.
M Chase & Co. and Citigroup Inc.’s Citibank unit - but the company has not drawn on the funds. The final
hearing on the DIP will be heard by Judge Arthur Gonzalez at the U.S, Bankruptcy Court for the Southern
District of New York in Manhattan. Final objections to the DIP are duc on Jan, 23.

Wall Street Journal R ‘ts Enron Heads Knew of Partnerships

Top Enron Corp. officials knew about the financial partnerships that fueled the former energy-trading giant's
downfall, and were aware of the possible conflict-of-interest issues surrounding its former chief financial
officer’s involvement in them, The Wall Strect Journal reported. Internal documents indicate that the
partnerships were viewed as essential to maintaining Enron’s rapid growth rate, the newspaper said in its online
edition. The documents also confirm the theory that top officials, including Chairman Kenneth Lay and former
President Jeffrey Skilling, were very involved with setting up and oversecing the partnerships, it added.

The documents include an internal memorandum from an Enron attorney to Skilling regarding the way to
monitor transactions with the partnerships, as well as excerpts of minutes from the company’s board and board
finance committee meetings. The partnerships were run by former chief financial officer Andrew Fastow, who
was ousted in October. He had been instrumental in forming outside partnerships, known as special-purpose
entities (SPEs), associated with Enron that are a focus of an investigation by the U.S. Securities and Exchange
Commission. Houston-based Enron is thought to have used the SPEs in transactions designed to take debt off its
balance sheet and protect the good credit rating critical to its highly leveraged capital structure, according to
lawyers involved in the case. After it was forced to alter this strategy and restate its financial results to
consolidate the SPE transactions onto its books, Enron’s corporate debt was downgraded and its stock price
plummeted.

Enron Creditor Opposes Data Release

After demanding Payment from insurance companies that backed more than $1 billion worth of oil and gas
contracts signed by n Corp., J.P. Morgan Chase is trying to prevent the insurers from getting details about
the transactions, according to the Associated Press, The New York-based investment bank on Sunday filed an
objection to a request made by the insurers, who are refusing to honor $1.1 billion in surety bonds and are
asking for access to Enron financial records to determine if energy contracts actually existed. The request was
filed last month in U.S, Bankruptcy Court in New York. J.P. Morgan sought payment of the surety bonds after
the collapse of Enron. The payment dispute between the bankers and the insurers is the subject of a

civil lawsuit taking place in U.S. District Court. The fact that it is now spilling over into the federal bankruptcy
court proceedings shows how the interests of Enron’s creditors are intertwined.

The insurance companies involved include Citigroup Inc.’s Travelers unit; Kemper Insurance Co."s
Lumbermens Mutual Casualty Co.; Allianz AG's Fireman's Fund Insurance Co.; Chubb Corp.'s Federal
Insurance Co,; St. Paul Cos.’s Fire and Marine Insurance; CNA Surety Corp.'s Continental Casualty Co.;
Safeco Corp's Safeco Insurance Co.; Hartford Financial Services Group Inc.; and Liberty Mutual Insurance Co.
The insurers backed a total of $2 billion in transactions. Early last month, they asked J.P, Morgan Chase for
details of the contracts before they would pay off all of the surety bonds. All but one of the insurers, Travelers,
subsequently asked a bankruptcy court judge in New York to void $1.1 billion worth of the obligations. As a
result, J.P. Morgan had to increase its estimated exposure in the collapse of Enron to $2.6 billion-more than
double what it previously acknowledged-with $965 million of that amount tied to surety bond payments.

, 02839

01300000001448


decided it would be easier simply to redeem the paper outstanding, he said.

The Enron spokesman Sunday said that paying off the commercial paper and still leaving the
company with an additional roughly $1 billion cash on hand would give it more financial flexibility.

Also last week, credit-rating agencies warned investors they were reviewing Enron's debt and
commercial-paper ratings for a possible downgrade. A lower rating could hamper Enron's core
trading businesses.

Behind the worries among these agencies, in part, is the loss of investor confidence, which one of the
rating companies, Fitch, said in a report last week could impair "Enron's financial flexibility and
access to capital markets, therefore impacting its ability to conduct its business."

The Enron spokesman said the company’s trading partners are doing business with Enron on
“essentially the same terms" as they have in the past. "There has been no significant change in the
credit conditions," he said. Trading partners demanding significantly stricter terms from Enron would
be a sign of further deteriorating confidence in the energy giant's finances. The banks involved in the
negotiations, including J.P. Morgan Chase & Co. and Citigroup Inc., are asking Enron for stricter
covenants on the new credit line than they had asked for In the past, one official said.

Bankers involved with the company say the goal of the new credit line is to show the investment

community that Enron can meet its commitments. “Confidence in this company was lost," said one
bank official involved in the negotiations for a new credit line. "But confidence will be restored."

Corporations of Enron's size commonly establish credit lines only to demonstrate to the investment
community that in case of an emergency, they have access to cash. In practice, few companies
actually make use of these lines. Thus, drawing down credit lines, while providing immediate cash,
also illustrates the pressure Enron is feeling.

Write to Jathon Sapsford at jathon.sapsfordi

Tracking: Recipient Delivery Read
‘Schuttheiss, Heidilnne Delivered: 102007 9:18 AM Read: 10/28/01 9:18 AM
Nickolott, Peter Delivered; 1072004 9:18 AM Read: 10/20/04 9:19 AM

2 02910

01300000001519


tax returns last year listed his wife with assets of Dollars 250,001-Dallars 500,000 in an Enron Deferred Compensation
Fidelity Batanced fund.

Mr Gramm played a key role in ing the Commodity Futures Modernisation Act passed in December 2000. The act,
which deregulated all financial atives and relaxed oversight of commodity exchanges, had been languishing in the

Copyright: The Financial Times Limited 1995-1998

Tracking: Recipient Delivery Read
Smith, Amy Delivered: 1/802 5:14 PM Read: 1/802 5:15 Pt

01300000000056


Page 5 of 7
within certain parameters, because so many people were trying to bail out and couldn't.
CORZINE: We also have a 90-day rule here,

CRIER: Yeah, But. But to tell people, the government, financial planners, no better than you -- since all these financial people couldn't figure
out what was happening with Enron, I don't have a lot of confidence -. but to tell us we can't hold more than x amount of stock begins to bother
me. Isn't that 2 bit Big Brother?

CORZINE: Well, there's two things that I'd comment. First of all, sometimes when there is fraud or deception in accounting statements, it's
easy for investors to draw the wrong conclusions. I think there's a whole set of issues with regard to Enron that surround their accounting
statements.

But as it relates to so-called interference with an individual's decision, the fact is that the federal government is sponsoring 401(k) programs.
It's giving tax advantages both to the employee and the employer for encouraging these 401(k) programs.

I think they're great. I think the defined contribution programs, as embedded in the 401(k) program and a number of the ESOP programs, are
great. But when the government is encouraging it, then I think we ought to follow sound principles of investment management within that
context,

CRIER: The government -- the government is giving people tax breaks, as it does corporations and others in the IRS code. It's giving tax
breaks to encourage savings. It's not taking the place of either a financial investor of my Own judgment as to what I want to invest in.

Now, for exaznple, when Enron was $80 a share, 1 would probably be pretty angry if the Senate was telling me I couldn't bay much of that stuff
that I wanted. Now, if I'm going to be foolish enough to do that, isn't that really my choice? Of course, it's very different from the company
telling me I have to buy their stock

CORZINE: Again, when I think public monies are used to encourage retirement savings — and by the way, if you were in a divine benefit
program, the ERISA laws have a 10 percent limit when professional money managers are responsible — I think it is reasonable that the public
‘ought to say that we use our moncy consistent with sound financial planning advice.

CRIER; OK. Final question...

CORZINE: And that's what you'd hear from anyone who has been involved in financial markets over time.

CRIER: Yeah, well, I do agree with the principle. But final question, Senator. All these people who have lost their retirement portfolios are
going to be desperate. Anything about the Enron investigation that can give them hope they'll see money back?

CORZINE: Well, I think there is the potential that there may be some recovery from some of the individuals who have benefited from Enron,
particularly inside the company.

If we find out with the fullness of time of investigations, either by the Justice Department or other entities that there was fraud involved, then I
think we can go back for recovery, some people who may have assets. That's part of the process, the legal process, and | think it has to run its
course.

CRIER; OK,

CORZINE: Thank you,

CRIER; Senator Jon Corzine, thank you very much.

And just as a side note, the judge dawn in Houston ~ for all of you at home ~ the judge down in Houston that's looking at this is thinking about
freezing the financial assets of 29 current or former execs over at Enron. Still debating, and maybe there is some money there to glom on to.

In the meantime, anyone smell a rat in the whole Enron mess? Well, perhaps even more than one.

Joining us to do some sniffing around are “Business Week" economics editor Peter Coy, who is in New York; in Los Angeles, syndicated
columnist Arianna Huffington; and in Sacramento, political writer William Bradley. He's @ contributor to the "American Prospect,"

Arianna, | want to start out with you. You wrote a great editorial, really took off on the political question. And it's disturbing to me that we're
hearing a lot about the pension funds and money that people lost, which is critical.

We're hearing a lot about Arthur Andersen and accounting firms not doing their job. We're not hearing a lot about outright corruption and
possible political connections. What about that?

ARIANNA HUFFINGTON, SYNDICATED COLUMNIST: Well, actually, that is probably the most interesting story, because it's really an

1/15/02 0271 2

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Carleton, Norman

From: Carleton, Norman

Sent: Tuesday, August 28, 2001 9:58
To: Belinda Blaine (E-mail)
Subject: FW: Enron article (2)

oe ‘Original Message-----

From: Carleton, Norman

Sent: Wednesday, August 22, 2001 10:13 AM
To: Nickoloff, Peter; Schultheiss, Heidilynne
Subject: FW: Enron article (2)

—---Original Message----~

From: Norman Carleton (mailto: Norman,Carleton@worldnet.att.net]
Sent: Thursday, August 16, 2001 11:43 PM

To: Norman Carleton; norman.carleton@do.treas.gov

Subject: Enron article (2)

&

AUG 16, 2001

Enron Head Seeks to Reassure Staff

By REUTERS

Filed at 4:48 p.m. ET

HOUSTON (Reuters) - The chairman of Enron Corp. (news/quote) (ENE.N) on Thursday sought to reassure
employees that the energy giant's business was on firm footing as its stock faced a second day of brutal
pressure on Wall Street, following a top executive's shock resignation.

Kenneth Lay told employees at a companywide meeting that Enron's business was strong, despite the
extended pressure on its stock and heir apparent Jeff Skilling's unexpected resignation as president and
chief executive officer.

Lay, who was met with a standing ovation when he took the podium, touched on a wide variety of topics
during the 90-minute meeting during which he took questions and presented financial data he said proves
the company is strong.

“We've got a lot of great stuff going on and we're not getting much credit for it in the marketplace, but we
will," Lay said. "| do think the next several months and few years are going to be great for Enron.”

His comments came as Enron's stock saw its worst day in 19 months, closing down $3.40 or 8.5 percent at
$36.85 on the New York Stock Exchange. That brings its losses to roughly 13 percent since Skilling
announced his resignation after the market's close Tuesday.

Lay said he believed the energy giant's stock can sustain a price-to-earnings (P-E) multiple of 25-30 going
forward. It is about 20 right now, based on Wednesday's close.

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Page 9 of 11

L.A, that was involve with this. He told me that there's a thing called the parallel market where Fortune 500 companies are basically using their
product to launder Colombian drug cash. It has been going on for years and years.

DOBBS: Using certain countries, Caribbean countries, principly, as the duty-free air.

CANNELL: That's right. The duty-free companies broker these deals between the drug dealers and the cigarette companies, The cigarettes go
to an island, somewhere in the Caribbean, a duty-free zone and then it is smuggled into Columbia.

DOBBS; What is the total size of the cigarette market in Columbia?

CANNELL: They believe that the market is about $10 million.

DOBBS: And they spend -- U.S. companies ~ spend in advertising, how much a year?

CANNELL; Well, over 30.

DOBBS: Now there is 2 $10 million market. They are spending 30 million, and what do you think the value of the entire enterprise is?
CANNELL: I think there may be as much as a billion dollar illegal market in Columbia.

DOBBS: Just in Columbia?

CANNELL: Yes, And this advertising money is being spent to basically promote that billion dollar market.

DOBBS; You don't name names, you don't name specific tobacco company, would you like to venture forth tonight?
CANNELL: No, I mean, I will tefl you what, if you go on the Internet and you punch out the black market peso exchange, and — with any
descent search engine you will get 50 stories that will name them for you -- the idea is that what I'm trying to do with this novel, this is work of
fiction -- but it is based on fact -- I'm trying to do is put some heat on this idea that there is a way that we can attack drug dealers without
manning these borders and trying to shut down the smportation of narcotics.

DOBBS: And in my opinion, you've done just that. And as alway’, anytime you have Shane Sculley, I am going to read it. The fact is, what I
was pointing out in terms of naming names, the lawsuits that would result are probably sufficiently bothersome that it wouldn't be...

CANNELL: Well, that is probably where we are headed. You're right.
DOBBS; All night, Stephen Cannell as always, good to see you.
CANNELL: Thank you.

DOBBS: Sul! ahead here, with the telecom business in the midst of the worst slump ever, we will be talking with the chief executive officer of
Sprint, William Esrey will be talking about new products and plaguing problems. Stay with us.

(COMMERCIAL BREAK)

DOBBS: On Wall Street, stock prices finishing generally lower despite new signs pointing toward economic recovery. Blue Chips falling for
the fourth straight session, the Dow down 26 points today. The Nasdaq gained two points however. And the S&P 500 up a point on the day.

A much anticipated advancement in telecom: the third generation technology 3G, providing higher data speed and capacity for the mobile
phones of Sprint (Company: Sprint FON Group; Ticker: FON; URL: http;/'www,sprint.comy’). Sprint today announcing the new product at its
consumer electronics show, announcing that they will offer the 3G next generation applications and services this summer, the first to do so,
CEO William Esrey joins me now from Las Vegas to talk about the product, his company and the prospects.

Bill, good to have you here.

WILLIAM ESREY, CHMN & CEO, SPRINT: Lou, always a pleasure to be with you.

DOBBS: You've stolen the march on your competitors with the introduction of the next, if you will, generation of CDMA. How will you
maintain the advantage?

ESREY: We're going to convert our cntire nationwide network in the middle of the year to this third gencration technology. We are fortunate
that we have the frequency and we have the technology that enables us to get there. It is going to be very hard for our competitors that are
frequency shy and don't have the technology that allows a graceful migration to third generation.

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Page | of IL
Carleton, Norman

From: Lori.Santamorena@bpd treas.gov
Sent: Friday, January 11, 2002 2:00
To: norman.carleton@do.treas.gov

SHOW: MONEYLINE 06:00 PM Eastern Standard Time

January 10, 2002 Thursday
Transcript # 011001cb.110

SECTION: Business

LENGTH: 8009 words

HEADLINE: LOU DOBBS MONEYLINE; CNNfi

GUESTS: Paul O'Neill, Stephen Cannell, William Esrey

BYLINE: Lou Dobbs, John King, Susan Candiotti, Allan Chemoff, Bill Hemmer, Kitty Pilgrim, Jamie McIntyre, David Grange

BODY:
‘THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

LOU DOBBS, CNNfn ANCHOR, LOU DOBBS MONEYLINE: Good evening. The Enzon (Company: Enron Corporation; Ticker: ENE;
URL: http2//.www.enron.cony) debacle is taking on ominous and disturbing dimensions. It has already resulted in the largest comporate
bankruptcy in history, the loss of thousands of jobs, and the loss of billions of dollars in investments. Today, Enron's accounting firm,
Andersen, disclosed that it had destroyed a significant number of documents in recent months, something the Securities and Exchange
Commission is calling, quote, "extremely serious".

Also today, Attorney General John Ashcroft and a top aide recused themselves from the criminal investigation of Enron. For the latest, we head
to the White House, where senior White House correspondent John King is following the story -- John. JOHN KING, CNN SR. WHITE
HOUSE CORRESPONDENT: Lou, good evening. Not only dramatic developments today indicating how the investigations are expanding, but
also how the political ramifications of the Enron situation are stretching across Washington and deep within the Bush White House.

You mentioned the attorney general, John Ashcroft. He and his chief of staff announcing today they will recuse themselves from this relatively
new, two-week-old federal crimirsal investigation into whether Enron defrauded its employees and its sharchokders. The reason why: John
Ashcroft was a Republican senator last year, seeking re-election, He received $60,000 in contributions from Enron and top company officials.
‘So he is stepping aside.

Here at the White House, the president announced two additional investigations. These government reviews to determine if the government
needs to do more, new disclosure laws to require companies to tell their shareholders and their employees those invested in 401(k) plans,
especially when their finances are deteriorating. But, of course, because of the political connections of Enron CEO Ken Lay, the president was
also asked whether perhaps this long-time friend of the Bush family received any special treatment.

(BEGIN VIDEO CLIP)

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: | have never discussed with Mr. Lay the financial problems of the company.
‘The last time that I saw Mr. Lay was at my mother’s fundraising event for literacy in Houston. That would have been last spring.

(END VIDEO CLIP)
KING: Now, Enron filed for bankruptcy in early December. We learned today that CEO Kea Lay did call two members of the Bush cabinet. In

late October, he called Commerce Secretary Don Evans and the Treasury secretary, Paul O'Neill. We're told he called Secretary O'Neill a
second time, a short time later, in early November. In those conversations, we are told Ken Lay said the company was at risk of not being able

1/15/02 027 1 5

01300000001324


Page 4 of Il
short exchange of gunfire. To what that was directed is not clear right now, but it did last several minutes.

We were later told by the Marines that smal! arms were received bere and also received by covert gunships circling overhead, two to be
precise, Later, we were told by the Marines that snipers were detected and perceived around the perimeter. Special forces were sent out to
extinguish that threat, Members of the 101st Airbome division, U.S. Marines, scrambling at that point to take their defensive positions here,
many more scrambling inside the terminal building where we were located at the time.

Again, this lasted about three to three-and-a-half hours and we're not quite sure right now, Lou, as to whether or not that security breach
continues at this point, or whether or not they'll be questions for the next shipment of detainees once that gets underway at sometime in the
very near future, Lou,

DOBBS: You mentioned the two covert gunships. Presumably, they were dispatched in response to the perceived breach of the perimeter. Is
that correct?

HEMMER: Yes, that is indeed correct, Lou, And they were flying around, based on our perception, for about two hours time. And we did
notice also, at the time that the covert gunships were basically dhe only type of aircraft in the aur, the airport was basically and essentially shut
down, no flight operations, no lights were on as the security again was breached here, and they were taking no chances,

1 should mention also prior to that, the first group of detainees, Lou, two groups of 10 taken out here, It seemed very orderly and very
deliberate. Security was extremely tight. And the two groups were told recently all the detainees here taken out were clean shaven from bead to
toe, including the much coveted beard worm by many and all al Qaeda members here in Afghanistan.

Again, a C-17, especially equipped to take the detainees on that 20-hour flight to Guantanarno Bay, Cuba. But again, as | mentioned, this is a
major security breach at this point. There will be many questions about how to handle this in the future, One source said it was a trial run of
sorts to make sure the security measures implemented over the past four or five days here in Kandahar indeed were upheld. There will be many
questions about that when the daylight comes up several hours from now, Lou.

DOBBS: One final question, Bill, the perimeter, presumably, manned by U.S. forces rather than Afghan. That would be my presumption. Is
that a correct presumption?

HEMMER: Lou, at this point, here's our understanding: Two perimeters here in Kandahar, the interior and the exterior. The interior is guarded
by the U.S. military and the other coalition forces. The exterior, we're told, is guarded by the OGs, the opposition groups, opposition groups of
the Taliban and al Qaeda here in Kandahar. We are told the exterior perimeter is where the breach was determined and located, where those
Snipers apparently were firing again about nine hours ago here in Kandahar, Lou.

DOBBS: Bill, thank you very much. Bill Hemmer from Kandahar.

Well, CNN has learned an that an advance team of 25 U.S. special forces has landed in the Philippines. And that number could grow to 100
special forces with hundreds of maintenance and other personnel in support. They are all part of a larger U.S. military effort that could
eventually number as many as 500 troops to help the Philippine government fight Muslim terrorists tied to the al Qaeda. Experts calculate that
bundreds of Muslim terrorists may be in the outlying islands of the Philsppines, perhaps thousands. Kitty Pilgrim has the report,

(BEGIN VIDEOTAPE)

KITTY PILGRIM, CNNfn CORRESPONDENT (voice-over): U.S. officzals say the total effort could number 500 U.S, troops, including
special forces troops, will be involved in the effort to root out Muslim terrorists tied to al Qaeda.

DONALD RUMSFELD, SECRETARY OF DEFENSE: Some time back, I signed understandings that we would provide some training and
assistance to the Philippine government.

PILGRIM: The current effort is part of a $4 billion military aid package approved after September 11 to provide advice, training and
equipment to the Philippine forces.

MIKE VICKERS, CSIS: Helicopters, transport aircraft, patrol craft and trucks, and then a lot of stepped up training too by special forces and
intelligence folks and also helicopter training for the Filipinos to give them an edge over the guerrillas, But I think the Filipino army will
largely do the work themselves.

PILGRIM: The Philippines has a been a hotbed of terrorist activity. A particularly savage group, Abu Sayyaf, operates from the Philippine
island of Mindinao, U.S. troops are being sent to the southem city of Zamboanga

Abu Sayyaf terrorists are notorious for beheading their captives, Two Americans, Martin Bumbam and his wife, Gracia, were taken hostage
along with another American and 17 Filipino guests of a resort last May. One of the Americans and four of the other captives were beheaded in
June.

ADRIAN KARATNYCKY, PRESIDENT, FREEDOM HOUSE: But it is a fact that the founders of this group participated in the struggle in

1/15/02 02718

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Page | of 3
Carleton, Norman

From: Carleton, Norman

Sent: | Wednesday, August 22, 2001 10:13 AM
To: Nickoloff, Peter, Schultheiss, Heidilynne
Subject: FW: Enron article (2)

Tracking: Recipient Delivery Read
Nickolomt, Peter Delivered: 8/22/01 10:13 AM Read: 6/22/01 10:15 AM
Schultheiss, Heidlynine Delivered: 8/22/01 10:13 AM Read: 6/26/01 8:50 AM

—---Original Message—---

From: Norman Carleton (mailto:Norman.Carleton@worldnet.att.net)
Sent: Thursday, August 16, 2001 11:43 PM

To: Norman Carleton; norman.carleton@do.treas.gov

Subject: Enron article (2)
&

AUG 16, 2001

Enron Head Seeks to Reassure Staff
By REUTERS
Filed at 4:48 p.m. ET

HOUSTON (Reuters) - The chairman of Enron Corp. (news/quote) (ENE.N) on Thursday sought to reassure
employees that the energy giant's business was on firm footing as its stock faced a second day of brutal
pressure on Wall Street, following a top executive's shock resignation.

Kenneth Lay told employees at a companywide meeting that Enron's business was strong, despite the
extended pressure on its stock and heir apparent Jeff Skilling's unexpected resignation as president and
chief executive officer.

Lay, who was met with a standing ovation when he took the podium, touched on a wide variety of topics
during the 90-minute meeting during which he took questions and presented financial data he said proves
the company is strong.

“We've got a lot of great stuff going on and we're not getting much credit for it in the marketplace, but we
will," Lay said. "I do think the next several months and few years are going to be great for Enron.”

His comments came as Enron's stock saw its worst day in 19 months, closing down $3.40 or 8.5 percent at
$36.85 on the New York Stock Exchange. That brings its losses to roughly 13 percent since Skilling
announced his resignation after the market's close Tuesday.

Lay said he believed the energy giant's stock can sustain a price-to-earnings (P-E) multiple of 25-30 going
forward. It is about 20 right now, based on Wednesday's close.

“1 think the current business model can easily justify a 25-30 P-E, with the current business model and in the
current market,” Lay said. “We can't get that 40-50 P-E back until we get our return on capital investment

up."

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However, the targeted transactions have varying degrees of execution risk, particularly the divestiture
of assets in emerging market countries, the rating agency said.

An additional uncertainty is the Securities and Exchange Commission's investigation of certain
Enron:sponsored partnerships. The outcome and potential impact of the SEC activity is difficult to

predict,
-By Joe Niedzielski, Dow Jones Newswires, 201-938-2039;
joe. niedzielskiadowjones.com

Tracking: Recipient Delivery Read
‘Whaley, Jean Delivered: 11/501 12:19 PM Deleted: 12/4401 11:10 AM

01300000000062


Carleton, Norman

From: Carleton, Norman
Sent:

: Tuesday, January 08, 2002 5:14 PM

To: Smith,

‘Subject: FW: FT Article on Wendy Gramm, the CFTC, and Enron

Original Message---—

From: Carleton, Norman

Sent: Tuesday, January 08, 2002 4:56 PM

To: Bair, Shelia; Berardi, Steve; Bitsberger, Timothy; Eichner, Matthew; Gablondo, Jose; Gross, Jared; Hammer, Viva; Lori
Sanatamorena (E-mail); Nickoloff, Peter; Novey, Michael; Pietrangell, Fred); Roseboro, Brian; Schumhelss, Heldilynne; Whaley, Jean;
Wiedman, Mark

‘Subject: FT Article on Wendy Grannm, the CFTC, and Enron

COMPANIES & FINANCE INTERNATIONAL: Appointment may be probed
Financial Times; Jan 7, 2002
By NANCY DUNNE

Republican Texas Senator Phil Gramm and his wife, Wendy, former chairman of the Commodity Futures Trading
Commission, have both been strong proponents of deregulation.

Before leaving her CFTC office in 1992, Mrs Gramm kick-started a rule-making process at the behest of various energy
compenies and Wall Street banks, which exempted energy swaps from government oversight.

But it was not instituted until after she left the post and her subsequent eppontment to 2 seat on Enron's board a few
months tater is expected to come under scrutiny from one or more of the committees investigating Enron's

At the time of the CFTC rule-making, Enron was a strong financial becker of Mrs Gramm's husband. Between 1996 and
2002, the company's em icials and political action committees contributed Dollars 233,000 to the senator's
campaign war chest, according to the Center for Responsive Politics.

This included Dollars 22,000 given during the current Congress, although the senator is not running for re-election.

William Albrecht, who became acting CFTC chairman after Mrs Gramm's departure, it was he who ullimal
instituted the rule, Now an economics professor in lowa, Mr Albrecht said the Commission had been directed by ress
to exempt certain energy derivatives from reguiation.

“Everyone was on board for this,” he said, “We had dozens of meetings. If Enron is trading derivatives with Dynegy, they
don't need us in there watching it.”

ulation, however, had its opponents, and flourished for @ while during the Clinton . Former Congressman
Glen English was chairman of the subcommittee jurisdiction over the CFTC. He saw rio difference between
Gerivatives and futures traded on regulated exchanges.

“Regulation is not just for the traders but for the impact (of not having regulation) on the economy,” he said. "It was the
Tey ES ETC te Gackt react

Brooksley Born, ex-president Bill Clinton's first appointee as CFTC chairwoman, was opposed to deregulation. But her
ideas were anathema to the Republican Congress of the time, which threatened to fold the agency into the Securities and
Exchange Commission, according to a former CFTC official,

In 1993, Mrs Gramm was offered a position on the Enron board. She became a member of the company's audit
Fomenitee. Mrs Gramm decined to retum the FT's calls but its common for retiring regulators to move over to industries
oversaw.

She was paid Dollars 22,000 a year for the first three years. Her annual salary grew to Dollars 50,000. Between 1993 and
2001, she earned Dollars 346,000 plus Dollars 176,000 for attendance fees, according to 2 recent report fram Public
Citizen, a liberal advocacy group.

She also received stocks and dividends worth between Dollars 915,317 and Dollars 1.85m over the period. Mr Gramm’'s
1

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00900000000052


Carleton, Norman

From: Carleton, Norman

Sent; Friday, November 16, 2001 11:17 AM

To: Whaley, Jean

Subject: FW: NYT: Did Ken Lay Understand What Was Happening at Enron?
o> Original Message--—

From: Carleton, Norman

Sent: Friday, November 16, 2001 9:37 AM

To: Roseboro, Brian; Bitsberger, Timothy; Gross, Jared; Nickoicf, Peter; Schulthelss, Heicilynne; Pletrangell, Fred; Berardi, Steve;

Cetina, Jil; Sharer, James; Novey, Michact; Bichner, Matthew; Hammer, Viva

Subject: NYT: Did Ken Lay Understand What Was Happening at Enron?

November 16, 2001

FLOYD NORRIS

Did Ken Lay Understand What Was Happening at Enron?

What a tangled web was weaved by Enron. Both investors and managers seem to have been misled.

“Enron became overleveraged,” Kenneth L. Lay, Enron's chairman and chief executive, said this
week, adding that things went wrong in ways that "| could not have ever contemplated.” He pointed to
investments that “performed far worse than we ever could have imagined.”

That was the first time that Enron had admitted it had a leverage problem, and it came only after the
brutal reality had become apparent to many others. Mr. Lay says he understood what was going on,
but | suspect he had left crucial details to others who have since departed and did not fully grasp the
reality that was obscured by Enron's soothing financial statements.

When Enron was riding high, it could easily have sold stock to raise capital that it now desperately
wants. Mr. Lay and other executives sold stock, but the company did not. Just a month ago, Mr. Lay
spoke enthusiastically of how great the company's continuing earnings were.

The leverage was not easy to find. A lot of it was carried off Enron's balance sheet. Partnerships and
special- purpose entities that Enron set up borrowed money and funneled the cash to Enron. Enron
guaranteed the debt but did not have to show it on its own balance sheet because it could meet its
obligations by issuing stock. As undisclosed losses built up in those entities, it became more likely
they could not pay their bills, leaving Enron to do so.

It is also clear that the bond rating agencies did not understand Enron's plight until the last couple of
weeks, When they figured it out, it took a $1.5 billion equity infusion that is part of the Dynegy
(news/quote) takeover to keep Enron's rating above junk level.

Now Enron has a board committee investigating various transactions, and promises to release details
as they are uncovered. Officials speak as if they are learning what happened for the first time, and

laps they are. Jeffrey sriling. Mr. Lay's protégé, was Enron's chief financial engineer until he quit
his summer. And Enron's chief financial officer and treasurer were ousted as Enron unraveled.

Some investors would say none of that matters now, that the only important fact is that Dynegy is
buying Enron anyway. Chuck Watson, Dynegy's chief executive, is convinced that Enron's energy
trading business is a gem that more than justifies the price Dynegy is paying. He figures the losses
from the bad investments can be contained.

01300000000057


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Page 2 of 7
(END VIDEO TAPE)
ANNOUNCER: THE POINT, Now, from New York, Catherine Crier.

CATHERINE CRIER, HOST: Good evening. Well, you need something else to worry about, especially if you're 2 frequent flier? We've got it.
Investigators have been looking over the shoes taken from shoebomb suspect Richard Reid, and they don't think he made them without help.

Now, flashpoint. Where are the others? CNN's Senior International Correspondent Sheila MacVicar brings us up to date now on the
investigation.

{BEGIN VIDEO TAPE)

SHEILA MACVICAR, CNN CORRESPONDENT: Hidden in the inunigrant neighborhoods of Paris are the secrets of Richard Reid's six days
in this city. Somewhere here, just hours before he was scheduled to leave, intelligence sources believe Richard Reid was given the shoes
containing the bombs -- the bombs he tried to set off on the American Airlines flight to Miami,

French police are urgently trying to retrace his movements. The French anti-terrorism judge is so concerned, he is now working the case full
time. Investigators want to know if Reid's trip to Israel last summer was designed to test airline security, and intelligence sources say there is
growing evidence he traveled at least once to Afghanistan.

Buropean investigators and intelligence sources say they now believe that Richard Reid, far from acting alone, is part of a previously unknown
terror network, one which may ultimately prove to be part of al Qaeda, And they warn that within the ranks of that network, there is a very
sophisticated bombmaker,

FBI analysis of the shoes showed the bombs were made of two explosives, a combination experts say they had not previously seen: a military
explosive called PETN and a homemade explosive called TATP.

‘TATP was the explosive used by the Hamas suicide bomber who blew himself up outside this Tel Aviv nightclub last June, killing more than
20 others.

MACVICAR: Joseph Almog is the former head of the Israeli police forensic laboratories. TATP was first analyzed in those labs.

JOSEPH ALMOG, HEBREW UNIVERSITY: It's an extremely sensitive material. Extremely sensitive. It's very sensitive to friction, to spots,
to blow, and it can explode just by itself.

MACVICAR: European intelligence sources say, quote, "it is absolutely impossible that Reid made the bombs.” And the former bead of the
FBI Explosives Unit says the bombmaker was very skilled.

CHRIS RONAY, INST. OF MAKERS OF EXPLOSIVES: The combination of materials in the device and the priming mechanism appears to
be quite unusual and sophisticated. Hard to concoct it, Hard to put it together.

MACVICAR: Given the evidence, investigators now believe there is a logistics base somewhere in Europe, a place where the explosives and
the bombs could be manufactured. They do not yet know where.

It is now clear, they say, the crew and passengers on board American Airlines Flight 63 averted a disaster. And they warn of the possibility of
more attempts by this previously unknown terror network, of more bombs that could bring down planes concealed in places beyond the limited
capabilities of airport screening. Sheila MacVicar, CNN, Paris,

(END VIDEO TAPE)

CRIER;: So if there is a previously unknown terror group and bombmaker out there, is it time for everyone to fly barefoot?

Joining us from Toronto is journalist and author Eric Margolies. His book "The War at the Top of the World” is about the struggle for
Afghanistan, Kashmir, and Tibet. And in Los Angeles, Mark Juetgensmeyer. He's chairman of the Global Peace and Security Program at UC
‘Santa Barbara and the author of “Terror in the Mind of God."

Gentlemen, thanks so much, Mark, let me start with you. Do you buy the theory that there is an unknown terrorist group operating primarily in
Europe?

MARK JUERGENSMEYER, AUTHOR: Sute, it makes perfectly good sense. In fact, it fits in very well with what we know about al Qaeda. I
mean, the common-sense notion that there is 2 kind of corporate structure and if we get Osama bin Laden, we get the CEO of terrorism really
doesn't hold true with what we know about the way in which the network works,

There are all these small cells, these various groups, some of them working more or less independently, some with only somewhat tenuous ties
to the Osama bin Laden/al Queda network. And it appears as if Reid was a part of one of these groups.

1/15/02 02709

01300000001318


Enron Exposure Evident in the Credit Derivative Market Page 2 of 2
basket credit derivative transactions.

In addition, in December 2000, Enron began acting as the counterparty in
swap transactions without also being the reference entity, As such, its
counterparties are vulnerable to potential default by Enron as counterparty,
even if it is not a reference source of credit exposure in a transaction.

In these transactions, any default by Enron as counterparty under the swap
contract would initiate a process whereby termination of the swap contract is
possible. The nondefaulting counterparty would have the option to replace
Enron with a new counterparty in the swaps. This could be done on the whole
‘swap notional amount of credit exposure or the portfolio could be carved up
into pieces in order to distribute the risk across various counterparties.

Whether transferred to one counterparty or many, this process, called
assignment, leads to a mark-to-market valuation. That mark is either in favor
of Enron or the counterparty Enron faces, Thus, after an Enron default, the
counterparty could be exposed to a liquidity risk because it would have to
make @ mark-to-market payment to Enron, Conversely, if Enron has to make 2
mark-to market payment to the counterparty, the counterparty may not be
raceiving the payment, especially if insolvency proceedings commence.

Enron has secured ratings on three such credit derivative transactions in
which @ total notional amount of $3 billion of credit derivative exposure was
traded.

To give some perspective on this number, Mr. Khakee explained that
Standard & Poor's credit derivatives analysts in New York who review pools of
credit exposure have reviewed transactions with a total notional amount of
$23 billion in the year to date, “The notional amount of $3 billion retative to
Enron represents a larger percentage of overall rated credit derivative
transactions than would be expected of an entity that is not a traditional
broker-dealer, investment bank, or insurer,” he said.

This report was reproduced from Standard & Poor's RatingsDirect, the
premier source of real-time, Web-based credit ratings and research from an
organization that has been a leader in objective credit analysis for more

than 140 years. To preview this dynamic on-line product, visit our
RatingsDirect Web site at www.standardandpoors.conyratingsdirect.
Standard & Poor's.

Setting The Standard.

Published by Stancard & Poor's, @ Division of The McGraw-Hill Companies, Inc Executive offices: 1221
Avenue of the Americas, New York, NY 10020, Editorial offices: 55 Water Stoat, New York, NY 10041.
‘Subscriber services: (1) 212-438-7280, Copyright 2001 by The McGraw-Hill Companies, inc.

Reproduction in whole cr in part protibied except by permission. AB rights rasseved. Information has
been obtained by Standaré & Poor's from sources believed to be reliable. However, because of the
possibaity of human or mechanical error by our sources, Standard & Poor's or others, Standard &
Poor's does not guaraetne the accuracy. adequacy, or completeness cf any information and 5 not
responsible for ary errors or omissions oF Te result obtained from the use of such information. Ratings
are statements of opinion, nat statamants of fact or recommendations to buy, hokt. or sell any
securties.

02850

file//CAWINDOWS\Tcmporary%20Internet20Files\OLK3031\SPEnron2.htm 1/15/02

01300000001459


The 7th Annual Repo & Securities Lending Conference

Moderator

Panelists

3:00-3:15 p.m.

3:15-5:00 p.m.

Host

Contestants

Lifelines

$:00 p.m.

Page 4 of 6

obstacles to its growth), (iv) the effect of the dwindling supply of Treasury debt
SOMA portfolio and margining efforts, (v) Repo Tracking/Ginnie Mae Conversi
and (vi) Continuous Linked Settlement (CLS).

Omer Oztan

The Bond Market Association

Kevin Caffrey

Principal

Morgan Stanley & Co.

Jeff Ingber

Managing Director

General Counsel

Government Securities Clearing Corporation

Brian Reilly

Managing Director

BNP Paribas

Break

Ask the Trader!

This game show-style panel promises to be an entertaining and highly substantiv
examination of market practices in the repo and securities lending markets.
Experienced front-office funding professionals will be the contests, answering
questions a repo and securities lending trader commonly must answer in order to
complete a transaction. The professionals will also call upon legal, tax and accou
professionals active in the funding markets to help them answer these questions,
Contestants will also participate in a "bonus round", consisting of questions from
audience!

Larry Brandman

Vice President

Goldman, Sachs & Co.
Jeff Kidwell

Principal

Morgan Stanley & Co.
Others to be Announced
Patricia Brigantic
Director and Counsel
Salomon Smith Barmney/Citigroup
James Johnson

Partner

Deloitte & Touche, LLP
Lucy Farr

Associate

Davis, Polk & Wardwell
Cocktails

Registration Information

Registration Fees:

file://C:\WINDOWS\Temporary%20Internet%20Files\OLK303 l\repo.him

02898

1/15/02

01300000001507


involving Mr. Fastow presented a conflict of interest, After that discussion, Mr. McMahon moved to a different
job at the company, this person said.

Shares of Enron traded as low as $15.51 yesterday aftemoon, the lowest price for the stock since early 1995,
before recovering. In after- hours trading, they fell to $16.14.

One of the factors that hurt the stock yesterday was a decision by M, Carol Coale, an analyst at Prudential
Securities, to drop her rating to "sell" from "hold." She had lowered the rating to “hold” from "buy" on Monday.

"After the S.E.C. inquiry was announced," she said in an interview yesterday evening, "Enron should have
addressed it by delivering a scapegoat, as a gesture to the Street. Now they are replacing him today. The timing
is a little late, but I think it will be received positively by the Street.”

But she said that investor sentiment might work the other way. "People could fear that if you remove Fastow
from the management team, you'll never get any answers."

2 02639

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0900000000109


Carleton, Norman

From: Carleton, Norman

Sent: Thursday, January 10, 2002 12:44 PM

To: Whaley, Jean; Cetina, Ja; Pietrangeli, Fred; Novey, Michael; Hammer, Viva; Gross, Jared;
Wiedman, Mark; Rokenaes, Fred; Sharer, James; ‘Schultheiss, Heidilynne; Nickoloff, Peter

Subject: FT: A kerfuffie, indeed | O'Neill, Enronism, excerpts)

A kerfuffle,

indeed
Published: January 9 2002 23:17 | Last Updated: January 10 2002 00:12

Despite continued whispers around Washington that Paul O'Neill's job is in jeopardy, the White
House on Wednesday stood by its man, sa Ing rumours of the outspoken Treasury secretary's
imminent downfall were nothing but “kerfuffle” and “nonsense”.

Asked whether President George W. Bush's confidence extended to O'Neill's handling of the
Argentine crisis - while some critics have accused the Treasury of failing to give Buenos Aires more
support, others have slammed O'Neill for not cutting the strapped government loose earlier - White
House spokesman Ari Fleischer insisted it did.

“O'Neill has done an excellent job,” he told a gathering of reporters.

When the irascible Helen Thomas, a columnist for Hearst newspapers and the dean of the White
House press corps, reminded Fleischer that the riots and government collapse in Argentina have not
enerally been viewed as successes where policymakers have done “excellent” jobs, a nonplussed
leischer said the blame did not fall at O'Neill's feet: "Not everything in the world is in the control of

the United States, or even the Treasury secretary.”

Financiers have heard more than once the old joke explaining the differences between capitalism,
communism and many other isms:

“Capitalism - You have two cows, You sell one and buy a bull. Your herd multiplies, and the economy
grows. You sell them and retire on the income. Communism - You have two cows. Your neighbours
lp take care of them and you all share the milk."

The latest version of the joke doing the rounds on Wall Street adds an “Enronism” to the list:

"You have two cows. You sell three of them to your publicly listed company, using letters of credit
opened by your brother-in-law at the bank, then execute a debvequity swap with an associated
generai offer so you get all four cows back, with a tax exemption for five cows, The milk rights of the
six cows are transferred via an intermediary to a Cayman Island company secretly owned by the
majority shareholder who sells the rights to all seven cows back to your listed company. The annual
report says the company owns eight cows, with an option on one more.”

Enron's shareholders will be hard-pressed to see the funny side.

Tracking: Recipient Delivery Read
Whaley, Jean Delivered: 1/10/02 12:44 PM Read: 1/10/02 2:24 PM
Cetina, Jat Defivered: 1/10/02 12:44 PM Deleted: 1/14/02 1:36 PM
Piatrangoll, Fred Datvered: 1/10/02 12:44 PM Read: 1/1002 1:16 PM
Nowey, Michael Detvered: 1/10/02 12:44 PM Read: 1/1002 12:46 PM
Hammer, Viva Delivered: 1/1002 12:44 PM Read: 1/1002 12:44 PM
Gross, Jared Delivered: 1/1002 12:44 PM Read: 1/10/02 1:00 PM
Wiedman, Mark Oelvered: 1/10/02 12:44 PM Read: 1/10/02 12:48 PM

1

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sheet or liquidity position, then the company will likely lose access to the capital markets," he wrote in a
research note after the call.

To try to reassure investors, Enron said late Thursday that EnronOnline, its Internet-based trading exchange,
executed more than 8,400 trades that day, a higher-than-normal volume,

"We know we have our work cut out for us if we are to rebuild our credibility with the investment community -
and we're working on that,” Mr. Lay said in a statement. “But in the meantime, the best evidence of our strength
is the willingness of customers to bring their business to Enron."

But those reassurances apparently are no longer enough for Wall Street. Enron's stock tumbled almost 6 percent
Friday, to its lowest levels in six years.

Now analysts are scrambling to figure out the extent of Enron's off- balance-sheet debt and to assess the risk
that the company will have to issue new shares to make good on its partnership guarantees.

Carol Coale, an analyst at Prudential Securities in Houston, calculates that Enron may have close to $9 billion in
off-balance-sheet debt. She said that Enron had for two years been trying to sell about $6 billion in foreign
assets - including properties in Latin America and 2 power plant in India embroiled in a dispute with the state
government - and she worries about those prospects for sale in light of Enron's problems and the souring
economy.

"As Enron is forced to sell assets to keep the ratings agencies off their backs, they may have to write those
assets down," Ms, Coale said. On Wednesday, she downgraded her rating on Enron to "sell" from “neutral.”

"The bottom line is, it's really difficult to recommend an investment when management does not disclose the
facts," Ms, Coale said.

Short-sellers, who attacked Enron's accounting even before the company disclosed the write-off, say the
company's problems may run even deeper than analysts fear. Enron may have used the partnerships not just to
finance money-losing investments but to hide losses in its core trading business, they say.

"The company still isn't disclosing enough to know whether the core business, the trading business, is
profitable,” said Mark Roberts, director of research at Off Wall Street, which recomm shorting Enron's
stock on May 7, when it stood at $$9,43. "The issue remains: why are they doing these transactions? Our theory
has been that the core operations aren't that profitable.”

James Chanos, a leading short- seller who has bet that Enron's stock will fall, said, "Is Enron booking gains
when it has real profits, but hiding the losses when deals go against it?” Mr. Palmer of Enron said the company
stood by its reported energy-trading profits.

Even traders at other energy companies say they do not have a clear picture of Enron's positions. Enron
maintains that it is in no danger of being wiped out by a sharp move in electricity or fas prices because it keeps
its trading book balanced - meaning the energy it has agreed to sell is offset, in roughly equivalent amounts, by
energy it has agreed to buy.

“With these guys, they tell us - and all you've got is their word - that they're hedged,” said Mr. Vericger, the
economist.

IN fact, Enron has lobbied forcefully over the years to limit regulation and disclosure of its trading operations.
Last year, the company successfully lobbied Congress to effectively ensure that its Internet- trading platform
would be exempted from regulation by the Commodity Futures Trading Commission.

Enron and other power traders do file limited information in reports to the Federal Energy Regulatory
Commission, the agency that oversees wholesale electricity and natural gas markets, But the commission does
not keep track of specific transactions and prices.

Large-scale energy trading has existed for only about a half-dozen years. Enron pioncered the business, and now
dominates it, accounting for about one-quarter of all trading in the United States.

Before Congress and federal regulators opened up the market for wholesale electricity, a process that began in

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equity fund called LIM. The charge was due to Enron's forced sale of 55m of its own shares when the
partnership was unwound this summer. Almost nobody outside Enron had been aware of the terms of the
deal with LM, a “structured finance vehicle”.

Enron's failure to offer details about the risks from other related partnerships have led many to fear the
worst about its huge balance sheet. Its shares plunged by 19% on October 30th alone (see chart), before
recovering a bit the next day.

Andrew Fastow, who was replaced as chief financial officer on October 24th, was @ general partner in LIM,
Jeffrey McMahon, his successor, has much to do to restore confidence. Questions abound. Were the trusts
run at arm's length? What did Mr Fastow earn from the partnership? Ominously, the Securities and
Exchange Commission (SEC) has now launched a formal inquiry.

Moody's, a rating agency, last week cut its rating on the company’s debt to barely above "junk" level.
Further downgrades might unleash claims from other off-balance-sheet pertnerships. Those known about,
such as Atlantic Water and Marlin Water, do not seem big enough to bankrupt Enron, but speculation is
rife about what other obligations might lurk secretly in other structured vehicles.

A lower credit rating could destroy Enron's core franchise as the leading energy middleman, by scaring
away customers and freezing the wholesale energy markets. That might have nasty consequences in other
markets, Enron acknowledges that it is a large participant in the derivatives market, holding a portfolio
with a notional value of $21 billion. Rightly or wrongly, many traders believe that figure vastly understates
Enron's presence, If the firms on the other side of Enron's trades start to fear that payment is not coming,
they might curb their other trading, producing a knock-on effect. Where this could end up |s a subject of
much conjecture.

Utilities that trade energy could be hit. So could the commodity and derivative operations of large
commercial and investment banks. The ties are notably tight between Enron and J.P. Morgan Chase,
according to Ventana Capital, a research firm. Not only does J.P. Morgan provide innumerable separate
credit arrangements for Enron; it also has the largest derivative operation of any bank, as well as a large
business trading commodities. There is "no doubt” that Enron is on the other side of many J.P. Morgan
trades, says Ventana.

Were Enron to fail, Ventana thinks “it has the potential to cause a major financial crisis", worse, in some
ways, than what occurred after LTCM. That merely froze the debt markets temporarily, whereas Enron
deals in the building-blocks of the American economy. Imagine gridlock in the markets for gas, timber,
coal, metals, fertiliser, bandwidth or indeed any of the products Enron deals in.

As yet, this all seems unlikely. Many big traders were happy to deal with Enron this week, although at
shorter maturities and with less complex structures than in the past. Trading on EnronOnline__
http://www, enrononline.com/jsp/marketing/homepage/index.html> was reportedly strong. Jim Donnell
of Duke Energy, a big energy trader, described “a huge dichotomy” between the collapse in confidence in
Enron in the equity and credit markets and the “business as usual” attitude taken by big commodity
trading firms when considering Enron as a counterparty.

Yet as questions about Enron's credit-standing spread this week, it began to have difficulty making
markets in some instruments. Few firms would accept Enron's name as guarantor of a credit derivative. In
its core energy markets some big trading counterparties refused the Enron name. On the InterContinental
Exchange (ICE), two houses reportedly specified that they would not take Enron's credit.

The biggest credit exposure appeared to be with banks, whose $3 billion of back-up lines to Enron were

drawn down last week. J.P. Morgan arranged an additional $1 billion emergency credit-line this week. This
back-up, it is widely assumed, is needed mainly to meet margin calls triggered by the ratings downgrade.

01300000000064


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00900000000129


Carleton, Norman

From: Schultneiss, Heidilynne

Sent; Monday, March 19, 2001 12:23 PM

To: Carleton, Norman; Gross, Jared

Subject: Enron Capital & Risk Management Services

Enron has a sub-site on risk management products:

http: //wwwé.enron.com/corp/ourservices/capitalriske=gmt .html

02698

01300000001307


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Page 4 of 7
does not follow the patterns, the usual lines, and for which our response has to be as -- as diverse and subtle as well,

CRIER: All right, But then -- one final thought from Eric. Because whatever we think Reid is part of, he is displaying something with this shoe
bomb that is frightening a lot of investigators. What does that signal to you? Anything?

MARGOLIES: Well, first of all, that there are not so much a network but like-minded groups everywhere who are against the United States
and who are attracting other anti-American groups around them, We're lucky that Reid was as stupid as he was and tried to light a match inside
the cabin,

Supposed be had gone to the toilet and sct off the bomb there, If be had had any brains he would have done that. Thank God he didn't. So next
time, the -—- the person who was sent may be much more clever than this. This guy was strictly expendable material. Cannon fodder.

CRIER: Absolutely. Well, next time is a chilling phrase, bat one we have to remember, Eric Margolies, Mark Jurgensmyer. Gentlemen, thank
you.

Now, we're going to stop worrying about terrorists for just a while and talk about money. Specifically, a stock that went from $80 a share to a
mere 66 cents, Was your retirement riding on it? Don’t go away,

(COMMERCIAL BREAK)

(BEGIN VIDEO TAPE)

ANNOUNCER: Ahead, the biggest fall in corporate history,

People who lost a good chunk of change.

ANNOUNCER; Who's hurting? Who's investigating? And who's not getting involved? When THE POINT continues,

(COMMERCIAL BREAK)

CRIER: {t was the biggest fall from grace in business history. Enron was ranked number seven in last year's "Fortune $00.” By the time the
poy a lrmones went bankrupt in December, its fallout wiped aut $60 billion in shareholder value and the financial, legal and political fallout,

Today, to avoid a possible conflict of interest, Attorney General John Ashcroft and his chief of staff recused themselves from the criminal
investigation of Enron. The company and its executives have given tens of thousands of dollar to Ashcroft’s political campaigns.

Enron also has been one of President Bush's contributors, Today the president told reporters he never discussed the company’s financial
problems with its chief executive, although the two met at a fundraiser. The administration also bas disclosed that during Enron's fall there
were contacts between its executives and Vice President Chency, ‘Treasury Secretary Paul O'Neill and Commerce Secretary Don Evans.

This afternoon, Enron's accounting firm, Andersen, disclosed it had destroyed a significant number of documents in recent months, something
the Securities and Exchange Commission is calling, quote, "extremely serious.”

All right, Congress is now looking into the Enron mess. It's also looking for lessons and ways to protect regular investors from future wipeouts.
So joining me now is New Jersey Senator Jon Corzine. He is co- sponsor of legislation to protect pension plans in the wake of Enron's collapse.
Senator, thanks 50 much for joining us.

SEN. JON CORZINE (D), NEW JERSEY: Good evening, Catherine.

CRIER: Looking at this act, cited as the Pension Protection and Diversification Act of 2001, the point being what?

CORZINE; Very simple. When investors put all of their bets, all of their investments in one asset, one stock ora highly-concentrated portion of
it, they're at a much greater risk than they would be if they had a diversified portfolio.

Most professional money managers, most people who study financial planning think about this on a -- an effective basis have a diversified
portfolio, so we put a cap, a 20 percent cap.

Barbara Boxer and | introduced the bill to make that the maximum that one could hold in theit 401(k) plans with regard to company stock -~
actually, any stock, because diversification is a good principle for investment.

CRIER: OK. Senator, I have a little bit of trouble, While -- while I think it's a good thing for you to go in and tefl companies they cannot
mandate — which I understand is part of this ~ they can’t make employees buy their stock. They can't prevent employees from selling stock

1/15/02 027 1 1

: 0130000001320


purpose vehicle (SPV) issues notes to investors, accepting their funds in return, and then transacts a credit default swap
with the firm that is holding the debt. The big difference is that @ single name backs the CLN, rather than a pool of different
names. “With these CLNs, the invstor is buying exposure to a pool of one,” says Knakee.

Enron also transacted three structured credit deals of its own that were rated by S&P, issuing a total of $3 billion in notional
value, says Khakee. “In these deals, Enron is the counterparty - they were one counterparty in @ crecit default swap and
the counterparties on the other side of the deal are facing risk from Enron not because the company is part of thew
portfolio, but because the deal will have to be terminated.”

For investors in Enron's own structured credit, it is unclear what happens next. Knakee suggests that the counterparty will
need to seek a replacement value for the terminated default swap, and will potentially have a claim against Enron equal to
the net difference between the value of the swap when first transacted and the current market value of a replacement -
they will mark the deal to market, and accept either a net gain or loss.

Fitch's Lench, however, says that’s not necessarily the case. “It depends on the structure,” he says. “My understanding is
that, on day one of the transaction, im order to do-fnk the rating of fe notes from Error, investors’ funds would be used to
buy sovereign debt, In the event of Enron's bankruptcy, those bonds would be liquidated to repay the investors.”

The uncertainty about close-out procedures for Enron's structured credit deals redoubles when attention switches to the
company’s denvatives activities, which covered the whole gamut of assets from commodities and currencies to interest
rates, credit and equity. One area that could have been stickiest was Enron's role 2s a credit derivative dealer - traders
admit that the energy company was a major player in the market, standing alongside some banks in terms of the volume of
its deals and appetite for credit risk. Add to that the number of transactions in which other counterparties were buying or
selling their own exposure to Enron - contracts now triggered by Enron's default - and you have the biggest event ever to
hit the credit derivatives market.

“W's by far the largest default of any US rate and it's been the largest tri since Conseco ” Greg
Rosen, director and default swap trader with CSFB in New York. “Enron pi nd 8 very large pot hae Re -
definitely @ net seer - and we estimate that between $3 and $4 billion was sold to the market.”

Firms that have been trading Enron credit risk via the default swap market have been going back through their
documentation to check the terms of their transactions and settle the deals - CSFB included. “It's certainly been time-
consuming,” says Rosen, noting that there could be anywhere up to $8 billion in swaps with Enron as the unt credit.
Nevertheless, he says: “It's been very positive in terms of reassuring people that the products work as advertised. We
expect the trades to settle in a timely and orderly manner.”

Those firm that had Enron as a counterparty, meanwhile, have had to find new protection - which Rosen expects to result
in a large liability for Enron, “Everyone's lost the protection they thought th had, and gone out to find new protection.
Spreads are likely to have widened since their original ion, so they'll have claim against Enron based on the
difference between the original and the replacement,” he says.

But what about firms that have a multitude of different derivatives transactions with Enron? The energy giant's presence in
@ range of derivative markets, and its well-documented appetite for risk means that many counterparties will need to
replace not just @ default swap, but a whole basket of d it transactions, from electricity swaps to forwards to interest-
rate swaps and default swaps,

ideally, ties should be able to terminate all of their transactions with Enron, and work out a net sum, to be paikt
fomons party a other, representing a gain or loss across all of the defaulted deals. At least, that's how the industry
@ Itto .

Kimberley Summe, general counsel with isda in New York, says that industry documentation makes specific provision for
cross-product netting, pointing out that all varieties of derivative are recognised and provided for under industry-standard
documentation known as the master agreement. But getting the benkruptcy courts to keep up with changes in the
derivatives industry hasn't been a simple matter, and some lawyers have been warning their clients for years that cross-
product netting may not be enforceable, no matter how much the industry wants it to be,

One lawyer - who asked not to be named because she didn’t want to “be seen ‘ammunition to the bankruptcy court” -
there's no guarantee that bankruptcy lawyers in the Enron case will recognise the arguments of the derivatives
industry.

“The US bankruptcy code imposes restrictions on all of the things that are essential to the derivatives market - like
demanding payment, collateral and netting - but over the years provisions have been added for different derivatives
instruments. Fieople have been trading for the last 10 years on the assumption that those provisions will work. Everyone
expects them to, it hasn't been tested,” she says.

Bankruptcy law is careful about the allowances made for preferential treatment - the general idea being, says the a
that the goal is to preserve the value of the bankrupt company, and then to divide its assets among creditors. ves
market practice, including netting. could place some creditors ahead of others in the queue. The industry has argued that
this is essential for the safe functioning of the financial system, and US lawmakers have tended to agree - but the latest
legistation that would enshrine the rights of derivatives market participants to net across a range of products has not been
passed in its entirety, As things stand, there's a danger that Enron's trustees will see attempts to net across derivative

; 02880

01300000001489


Carleton, Norman

From: Nickoloff, Peter

Sent: Thursday, December 20, 2001 10:16 AM
To: Carleton, Norman; Schultheiss, Heidilynne
Subject: Yesterday's Samuelson Op-Ed on Enron

Enron's Creative Obscurity

By Robert J. Samuelson
Wednesday, December 19, 2001; Page A39

The collapse of the energy company Enron has inevitably become a metaphor for many of the sins of modem
capitalism. It may be, but the story is more complicated than a simple tale of victims and villains, Capitalism
derives its strength from the power of self-interest and the ingenuity of the human spint. But its weaknesses also
stem from human nature, which can convert the quest for riches into self-deception and dishonesty. The dangers
mount in periods of economic and financial exhilaration when -- as we've just experienced -- the stock market
seems the fastest path to instant wealth. People year for their pot of gold and, to get it, stretch rules and lapse
into wishful thinking.

The cult of share prices seduced managerial elites, ordinary investors and workers alike, with often disastrous
consequences. Among top corporate managers, it led to widespread embellishing and doctoring of financial
reports. Accounting rules were twisted or evaded to enhance reported profits, because higher profits would
(presumably) mean higher share prices. Creative obscurity became commonplace. The same spirit gripped many
investors and workers. People suspended skepticism and counted their paper profits. The dot-com and telecom
debacles are well-documented results. Now Enron joins the list.

To work well, capitalism needs accurate information. Even with ideal information, markets make mistakes.
Miscalculation is inevitable, because risk implies failure as well as success. But false or misleading information
compounds the dangers, and the booming stock market inspired a boom in misleading information. For
example, there's EBITA -- earnings (profits) before interest, taxes and amortization (debt repayments).
Companies emphasized earings on this limited basis in their news releases and played down the more complete
reports. The justification was that investors wanted to see a company’s raw “operating profits” without the
clutter of debts or taxes. The trouble, of course, is that companies have to pay debts and taxes.

‘The Securities and Exchange Commission and the Financial Accounting Standards Board, an accountants’ sclf-
policing organization, did little to check these abuses. By and large, people wanted to believe the best, and the
temptation to present the glossiest face was Enron's undoing. At its peak, the company’s stock traded at $90 a
share; now it’s selling for about 50 cents. The simplest explanation for its bankruptcy is a loss of credibility in
its financial statements. Fitch, the bond-rating agency, gives the following chronology. On Oct. 16, the company
announced it would take a $1 billion charge to reflect losses in "broadband" communication and water
businesses, among others. It also announced another $1.2 billion loss on a transaction outside its balance sheet.
On Nov. 8, the company said its profits fom 1997 to 2000 had been overstated by $591 million.

Though large, these losses shouldn't have single-handedly devastated a company that had reported $2.7 billion
in profits between 1997 and 2000 and claimed year-end 2000 stockholders’ equity of $11.5 billion. But the
revelations destroyed the faith of customers and creditors in Enron's numbers. Were other losses lurking? If you
fear not being paid, you stop dealing with Enron or lending to it. Once that happened, the company collapsed.
The skepticism was warranted. At the end of 2000, Enron reported debts of $10.2 billion on its balance sheet. In
its bankruptcy filing, it listed debts of almost $40 billion, including $22 billion on its balance sheet, nearly $7
billion "off balance sheet" and almost $11 billion for "project financings."

Among the collapse's biggest casualties arc the workers who lost jobs (about 5,600 so far, including 1,100 in
Europe) and had their retirement savings wiped out. Many were langerously overinvested in the company’s
stock. About 58 percent of the assets of the company’s 401(k) retirement plan were invested in Enron stock,
reports a survey by DC Plan Investing, a newsletter. But Enron wasn't exceptional. The survey found that 95
percent of Procter & Gamble's plan was in company stock, 77 percent of General Electric's and 54 percent of

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Page | of 2
Carleton, Norman

From: _Lori.Santamorena@bpd.treas.gov
Sent: Thursday, December 27, 2001 8:13
To: Norman.Carleton@do.treas.gov
Subject: Re:

interesting, OPIC and Ex Im Bank at one time issued instruments that were TT&L eligible,

MormenCesteten@dotressgov = ry J Catena ‘roan gos, Acne Satacinghdo tas gov, She Sheiis Bairghdo bess gov, Dooce Dears seen,
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on
‘Soject

December 20, 2003

Enron, O&, Bechtel Clsim VS Insurance On tndia Project

Dow Jones Newswires

WASHINGTON -- Karan Corp. (EME), General Electric Co. IGE! and Bechtel Corp,
(X.RTL) bave filed a tetal of nearly $200 million in Logurance clains with
the U.S. government for investment losses in india.

Sinew last week the three companies have individuatly filed applications
with the Overseas Private Investment Corp. for “expropriation corpensation*
en their investments in Babbol Power Co., OPIC spokesman Larry Spinelit said
Thuraday

Dabhel Power is a 62.9 billion power plant ane a Lientied natural gas, or
L8G, import terminal near Bombay in weet - It's considered the
largest foreign direct investment in India's "story,

We chvicusly regard this as a very serious development," Spinelli said of
the inwurance claima. "And we are looking to the Indian government for
constructive involvement to settle theae iseues.*

opr i# a government agency that finances U.S. companies’ oversess
inveetrents through insurance and loans. in addition to OPIC financing, the
U.S. government ia owed $202.5 millian for a loan the Export-Import Bank
made to Dabhol Power.

Work om the 2,184-megawatt Dahbol power plant atepped thia year after irs
sole customer, the Maharashtra State Rlectricity Board, declined to pay
earlier-agreed power prices.

Paced with noapaynent, Enron said in Auguet it would consider buyers for ite
controlling @s% intereat in the project. Officials from the bankrupt
Houston-based company met last week with Indian lenders and government
officials te discuss ways of disposing of its stake.

CH and Bechtel each Bold a LOS interest in the project. The Maharashtra
State Electricity toard holds the remaining 15%.

‘Two Indian companies, Tata Power Co. (P.TFW) and BSES Ltd. [P-REK), have
shown interest in bidding for the Dabhol power plant. Royal Dutch/shell (RD)
and BG Group Ple |BMG} have shown interest in the Dabhol LWO import
terminal -

-By Campion Malub, Dow Jones Newswires; 202-862-9291; 02 84 1

1/15/02

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But the crisis that Enron will face if its credit rating is downgraded is just a symptom of the bi, problem the
company must confront. For years, the details of Enron's finances have been a mystery even to the all Street
analysts whosc job it is to follow the company, and to the investors who own its stock and bonds. When Enron's
profits were soaring and it was creating lucrative new markets, shareholders did not seem to care about the
impenetrability of its financial statements.

Now they do. Yet the company seems incapable of offering straight answers to the questions investors ask.

To others in the industry, the opaqueness of the company's financial statements parallels Enron's efforts to keep
its energy-trading business lightly regulated and free of disclosure requirements. Though they do not expect
Enron to crumble like Long-Term Capital Management, they say that, like the giant hedge fund, Enron uses a
lot of debt, regulatory oversight is limited and outsiders have a difficult time figuring out its finances,

The most pressing concerns are a series of partnerships and trusts Enron created to move some of its assets and
debt off its balance sheet. With names like Marlin and Osprey, the partnerships have at least $3.3 billion in
bonds outstanding, backed by assets like a stake in Azurix, Enron's water company subsidiary, Enron has
promised that if the partnerships’ debts exceed the value of their assets, Enron will issue enough new shares to
make up the difference.

DEALS with partnerships formed by Mr. Fastow, who was chief financial officer when they were organized, led
to the $1.2 billion write-off in shareholders’ equity that Enron announced last week. The company has offered
only skimpy details of its transactions with those partnerships.

Enron ended its relationships with those partnerships in the last quarter, after being criticized by shareholders, In
the process, it wrote off a promissory note that it had carried on its books, reducing its shareholders’ equity by
$1.2 billion. But, because of complex accounting rules, the transaction was not apparent in Enron's quarterly
earnings report.

The transaction disturbs investors because it suggests that Enron may have found a way to hide losses, throwing
the accuracy of its financial statements into question, When Enron released third-quarter earnings on Oct. 16, it
ted a loss from $1 billion in write-offs on failed investments. The earnings statement did not mention the
itional $1.2 billion equity write-down. But the company said its core business had been solidly profitable,
and its shares rose.

In a conference call with analysts after the announcement, Mr. Lay, Enron's chairman, also disclosed the
reduction in shareholder equity. The reference was a brief one, however, and some listeners did not catch it.
Those analysts were angered when they found out the next day what Enron had done, and many were confused
by the accounting procedure. Enron's stock began to slide, and investors clamored for more information about
the write-off. But so far, the company’s efforts to clear up the situation have further unnerved investors.

Mr. Lay has met with investors during the last two weeks to try to explain the deals, but some on Wall Strect
say they have come away with doubts about Mr. Lay's grasp of the situation. They say that the two people at
Enron who appear to have been most knowledgeable about the deals - Mr. Skilling and Mr, Fastow - have both

left the company.

In an interview in late August, Mr. Lay said he did not know some details about the deals involving Mr, Fastow.
In response to one question about them, he said, “You're getting way over my head."

Mr, Palmer of Enron disputed any suggestion that Mr. Lay did not have a grasp of the investments at issue,
saying Mr, Lay was handicapped in talking about them because of the S.E.C. investigation, “There is not a
whole lot we can say, or should say, about them," Mr. Palmer said. He also said the company expected to
generate about $3 billion in cash through asset sales by the end of next year.

In a conference call on Tuesday, analysts pressed Mr. Lay and other top Enron executives to reveal more
information about the LJM write- down and its other partnerships, Instead, they offered only vague explanations
of the deal, leaving Wall Street worried that more write-offs might be coming.

David Fleischer, a Goldman, Sachs analyst and a longtime supporter of the company, was among those who

came away concemed. "If Enron is unable to clarify its off- balance-sheet transactions and restore confidence in
the very near term by assuring investors that no more surprises are forthcoming that would affect the balance

; 02632

01300000001241


Page 7 of 7
BRADLEY: Ob, OK. Well. Well then.

CRIER: The point that you just made -- and Fl get you back on here, William, because this is such an important story. The point is that access
will breed complacency and possibly corruption and we better get to the bottom of that,

BRADLEY; Totally deregulated markets and big money politics go hand in hand together.

CRIER: You got it.

BRADLEY: Corruption follows.

CRIER; OK. William Bradley, Arianna Huffington, Peter Coy, thank you so very much. THE POINT wil! be right back.

(COMMERCIAL BREAK)

CRIER: | know you've got opinions about the Enron mess. We want to know, Send that e-mail to thepoint@lcnn,com.

I'm Catherine Crier in New York, Coming up next on Larry King, be takes up the issue of televising the Zacarias Moussaoui trial with guests
like Mark Geragos and Julian Epstein. We'll see you back here tomorrow night. TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE
CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www. fdch.com

LOAD-DATE: January 11, 2002

02714

1/15/02

01300000001323


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00900000000046


Carleton, Norman

—_—_—_—_ ——___—_

From: Wiedman, Mark

Sent: Tuesday, December 18, 2001 12:55 PM

To: Carleton, Norman

Subject: RE: Bloomberg: Enron Enriched Wall Street Firms, Analysts Ignored Warnings (long story)

Jam shocked to discover there is gambling going on here! {Or something to that effect.)

-----Original Message—-~-
From: Carfeton, Norman
Sent: Tuesday, December 18, 2001 12:12 FM
To: Bair, Sheila; Berardi, Steve; Bitsberger, Timothy; Eichrer, Matthew; Gabilondo, Jose; Gross, Jared; Hammer, Viva; Lori

Sanatamorena (E-mail); Nickolof?, Peter; Novey, Michae!; Pietrangell, Fred; Rosebora, Brian; Schuttheiss, Heldiynne; Whaley,
Jeary Wiedman, Mark
Subject: Bloomberg: Enron Enriched Wall Street Firms, Analysts Ignored Warrungs (long story)

12°18 0243

Enron Enriched Wall Street Firms, Analysts Ignored Warnings
By Adam Levy

Houston, Dec. 18 (Bloomberg) -- On Tuesday, Oct. 16, Enron Corp. Chief Executive Kenneth Lay delivered a shocker.
Late in a conference call that followed the release of the ‘company’s third-quarter results, Lay said Enron would
terminate one of its several limited partnerships -- and thereby wipe out $1.2 billion of shareholder equity,

“*| shuddered when | heard that,” says Gregory Phelps, who invests $1.1 billion in energy and utility stocks at John
Hancock Advisers Inc. and has long avoided Enron, “But it didn’t seem to make much of an impression on part of the
investment community.”

Over the next few days, reports began piling up on Phelps’s desk from the Wall Street analysts who track Enron,
Merrill Lynch & Co., UBS Warburg LLC, Credit ‘Suisse First Boston and Goldman Sachs Group Inc. stTMl rated Enron a

buy
Prudential Securities Inc. analyst Carol Coale wrote that she was “dismayed” by management's “disguise” of the $1.2

billion equity reduction, yet she kept intact her “buy” rating and $55 price target on Enron stock, which was then
trading at $33.17.

“Strong Buy’

Richard Gross of Lehman Brothers Holdings Inc. maintained his “strong buy” rating. “The end of the work is not at
hand,” Gross said. “We think investors should rustle up 2 little courage and aggressively buy the stock.”

Pheips and other investors say the analysts’ reactions were just another sign of Wall Street's guilibility about Enron.

For more than a year, they say, analysts had ignored res flags ranging from inflated business valuations to large

insger stock sales, to the abrupt resignation of Jeffrey Skilling in August 2001 -- just six months into his tenure as
0.

As recently as September, Enron was the second most highly rated stock in the Standard & Poor's 500 Index, behind
Tyco Intemational Ltd., according to Thomson FinancialFirst Call.

“Enron is uniquely positioned to be the GE of the new economy. * Donato Eassey, Merrill Lynch's energy stock analyst,
told Bloomberg News in February 2001. “This isn't a management team to bet against.” Eassey resigned from Merl
in December.

Support is Obvious

One of the main reasons for all of the support Is obvious, say investors: Until the week before its third- quarter _

earnings report in October, Enron was a deal machine that enriched dozens of Wall Street firms through lucrative
underwriting contracts, mergers and acquisitions assignments and derivatives trades.

: 02872

01300000001481


Carleton, Norman

From: Carleton, Norman

Sent: Friday, November 16, 2001 11:16 AM

To: Whaley. Jean

Subject: Fw: Economist: Enron -- See you in court
-——-Oniginal Message-—--

From: ‘Carleton, Norman

Sent: Friday, November 16, 2001 9:13 AM

To: Roseboro, Brian; Bair, Shela; Gross, Jared; Nickoloff, Peter; Schultheiss, Heidiynne; Pretrangell, Fred; Berardi, Steve; Sitsberger,

Timothy; Novey, Michael; Exchner, Matthew; Hammer, Viva
‘Subject: ‘The Economist: Enron ~ See you in court
Enron

See you in court

Now 15th 2002 | NEW YORK
Fram The Boancrnist pent edition

The company’s trials have just begun

LAWYERS are swarming all over Enron's old financial statements and press releases in the hope of reaping
huge fees from securities litigation. More than 20 class-action lawsuits have been filed in recent weeks,
and new ones are popping up every day. A formal process has been started to consolidate litigation in
Houston, where the troubled energy company is based, with all lawyers interested in the case required to
stake their claims by December 21st.

The broadest accusations will be of fraud and material misstatement, legal ways of saying that the
company’s financial statements were garbage. This week, Enron's founder and chairman, Kenneth Lay,
decided to forgo a severance package worth over $60m while admitting that the company's problems “had
been exacerbated by the extensive use of debt capital, both on and off the balance sheet”. America's
Financial Accounting Standards Board (FASB) is looking again at off-balance-sheet financing, having
fretted about it on and off for a decade.

There will also be charges of insider trading, because even as Enron was Issuing securities amid glowing
profits reports, top executives were dumping over $1 billion of Enron shares to “unsuspecting investors", a
group that includes anybody who, however briefly, has held one of the company’s 750m shares in the past
two years. "The number of class members will be huge,” says Maurice Pesso, a lawyer at a New York firm
that has filed a claim.

There are, however, limits to the company’s liability. It has already restated its results going back five
years, but federal law restricts litigation to the past three. Moreover, Enron will not take the rap alone. Its
auditor, Arthur Andersen (now plain Andersen), is also named as @ defendant in at least one of the
complaints already filed. The litigation comes after a rough decade for Andersen. It has had to pay
hundreds of millions of dollars in settlements after sloppy audits on such companies as Waste
Management, Sunbeam and Discovery Zone.

Because Enron evolved from an energy company into a financial firm, it became much like an unregulated
bank. The lack of supervision meant that the role of the company's auditor was crucial. Andersen was
certainly paid as if it was. In 2000, it collected $25m for auditing Enron's books and another $27m for
consulting services. Now how do you account for that?

01300000000059


Pretrangeli, Fred
‘Sharer, James:
‘Schulthess, Heidiynne
Nickoloff, Peter

Dolivery

Debvered: 1/1002 12:44 PM
Delivered: 1/10/02 12:44 PM
Delivered: 1/10/02 12:44 PM

Read: 1/1002 12:45 PM
Read: 1/10/02 1244 PM
Read: 1/10/02 1:06 PM

01300000000067


Carleton, Norman

—______
From: Schulthelss, Heidilynne

Sent; Monday, October 29, 2001 4:05 PM

To: Carleton, Norman; Nickoloff, Peter

Subject: NYT Abstract; Enron Reports $1 Billion In Charges And a Loss

FREE ABSTRACT PREMIUMARCHIVE

October 17, 2001, Wednesday ER B oIc HA By KENNETH N, GILPIN Source: The New

York Times Section; Business/Financial Desk 619 words A Enron Corp posts third-quarter loss because of more than $1
billion in one-time charges for various businesses; net loss was $618 million in contrast to net income of $292 million year earlier;
revenue rose 59 percent, to $47.6 billion, from $30 billion last year (M) P ‘The Enron Corporation, the nation's

leading wholesale electricity marketer and natural gas trader, posted a third-quarter loss yesterday because of more than $1 billion in

‘one-time charges for various businesses. The company reported a net loss of $6... Purchase Full Text of Article

:

; 02629

01300000001238


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0900000000085


Enron traded derivatives in energy, broadband and weather with a host of investment firms, and at the time it filed for
bankruptcy, it owed some of them hundreds of millions of dollars.

According to its bankruptcy filing, Enron owed $185 million to two offices of Chase Manhattan Bank, a subsidiary of J

Pp Morgan Chase; $74 millon to UBS; and $71 million to CSFB Bear Stearns Cos. said it stood to lose $69 million
from the collapse of the energy trader, Commerzbank AG said it would jose slightly less than $45 million.

Schmoozing Wall Street

Enron's multiple business dealings with ‘Wall Street caused firms to look favorably on the company's new ventures,
say investors.

In late January 2001, for exemple, Enron's senior management hosted a meeting for 170 analysts and investors,
Skilling told the crowd that Enron's biggest immediate opportunity was its plan to trade broadband capacity: space on
the fiber-optic networks that zip voices, data and images around the planet.

Skilling said that based on his analysis, Enron's broadband business was worth $36 billion, or $40 a share. Enron
stock was then trading at $82. The business had lost ‘$60 million on $408 million in revenue in 2000.

“The numbers never added up, but Wall Street didn't challenge them,” says Harris Investment's Coxe.

Ronald Barone, an analyst at UBS Warburg, wrote after the January meeting that he was “brain drained, having
digested scores of detailed presentations.” He also wrote that he was “enamored” with Enron's broadband business,
even though it wouldn't generate eamings for at least a year because it would take that long to generate enough
trades.

$25 a Share

He estimated the business was worth $25 a share, or $22.5 billion. He kept his “strong buy” rating on the stock and, in
a January 25 report, raised his 12-month target on Enron stock to $102 from $100, The stock was trading at $82 at the
time. Barone declines to comment on his recommendations

Lehman's Gross raised his 12-month target price on Enron to $100 from $90 after the company’s analysts’
conference. He said he viewed Enron's foray into broadband as no different from any of its other endeavors,

~-Given the track record that has been displayed over the past 36 months, we have no reason to doubt the success of
their efforts," Gross wrote a week after the conference in a report dated Feb 4. Enron stock was then trading at $78
“We continue to recommend Enron as a core holding,” he wrote. Gross deciines to comment.

$180 Milton Charge

Enron's fiber-optic business collapsed this past summer. In its third-quarter earnings release, Enron said it had taken a
$180 million charge to restructure the business, including severance payments to 500 fired workers and a reduction in
the value of its operations,

‘As Enron's stock was rising on Wall Street, analysts often said they were in the dark about the company: how it made
money and booked sales and what was behind dozens of off-balance-sheet partnerships.

Their lack of knowledge didn't stop them from promoting Enron stock. Goldman Sachs analyst David Fleischer said in
March that Enron's “lack of disclosure and transparency is 2 long-standing hallmark."

Enron had been a fixture on Goldman's “recommended list’” of a couple hundred favored stocks since 1993, when
analyst Fleischer joined the firm.

“Extraordinary Franchises’
“Enron has built unique and, in our view, extraordinary franchises in several business units,” Fleischer said in March.
On March 14, Commerzbank Capital Markets analyst Andre Meade raised his tong-standing rating on Enron to

“accumulate” from “hold” because the stock had dropped 30 percent in the previous three months -- even though, he
said, he couldn't construct accurate earnings models, Enron keeps a lot of facts close to the vest,” he said.

; 02874

01300000001483


Carleton, Norman

— —

From: Carleton, Norman

Sent: Thursday, September 13, 2001 3:36 PM

To: Roseboro, Brian; Bair, Sheila, Malvey, Paul Huther, Jeff; Pietrangell, Fred; Schultheiss,
Heidilynne; Nickotoft Poter; Gross, Sharer, James; Cetina, Jil; Corfield, Anna; Byrne,
Kathleen, . Tim

Subject: Enron resumes market-making activity

Linda Robertson of Enron asked me to distribute the following press release,

Press Release

ENRON RESUMES MARKET-MAKING ACTIVITY IN NORTH AMERICAN NATURAL GAS AND

FOR IMMEDIATE RELEASE: Wednesday, September 12, 2001

HOUSTON - Enron announced today it will resume its market-making activity in North American
natural gas and power, Enron will buy and sell natural gas and power by phone and over its online
transaction platform EnronOnline until noon CDT.

“We see no reason for North American natural gasand power markets to become unstable in the
aftermath of yesterday's tragedies," said Greg ley, Enron president and chief Operating officer.
“These are domestic commodities, and the physical infrastructure is secure and operating.

Enron's markets outside of North America will operate according to their normal schedule.

Enron is one of the world’s leading energy, commodities and services companies. The company
markets electricity and natural gas, delivers energy and other physical commodities, and provides

financial and risk management services to customers around the world. Enron's Internet address is
yaww.enfon.com <hitp /veww enton com> The stock is traded under the ticker symbol “ENE.”

itt

Tracking: Recipient Dettvory Road
Roseboro, Brian Delivered: 9/13/01 3:36 PM Deleted: 11/501 5:17 PM
Bir, Shella Delivered: 9/13/01 3:36 PM Read: 9/13/01 5:05 PM
Matvey, Paul Oalvered: 9/13/01 3:36 PM
Huther, Jeff Debvered: 81/01 3:36 PM Read; 913/01 4:24 PM
Pietrangell, Fred Dekvered: 913/07 3:36 PM Read: 913/01 3:38 Pt
‘Schultheiss, Heidlynne Ostivered: 913/01 3:36 PM Read: 913/01 3:36 Pi
Nickolotf, Pater Delivered: 8/13/07 3:36 PM Read: 913/01 3:38 PM
Gross, Jared Delivered; 913/01 3:36 PM Reed: 819/01 4:43 PM
‘Sharer, James Delivered: 813/07 3:36 PM Read: S301 4:18 PM
Cefra, Ji Delivered: 813401 3:36 PM Deleted: 1072401 6:30 AM
Corfield, Anna Delivered: 61301 38 PM Read: 941301 £36 PM
Byrne, Kathleen Delivered; 81301 3.36 PM
Dulaney, Tim Delivered: 81301 3:36 PM Read: 8/101 2:36 PM

; 02914

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Page 1 of 2
Carleton, Norman

From: Lori.Santamorena@bpd.treas.gov

Sent: Monday, December 10, 2001 2:47 PM

To: norman.carleton@do.treas.gov; peter.nickolofi@do,treas.gov
Subject: 1BN } Enron Records at SEC Sought by House Energy and

=~ Forwarded by Lor Santamorena’BFD on 12/001 02:45 PM —

“PUBLIC DEBT, US DEPT OF TREASURY” <GSRS@bloomberg.net>
To LSANTAMORENAQEPD.TREAS.GOV

. ce
tarot 02:26 Pea Subject: — 18N_ ) Enron Records at SEC Sought by Hause Energy ané Comme

Enron Records at BEC Sought by House Energy and Commerce Panel
2002-12-10 13:25 (New York}

Enron Records at SEC Sought by Nous Snergy and Commerce Panel

Washington, Dec. 20 (Bloomberg) -- The U.s. Mouse mnergy and
Commerce Committee anked the Securities and Exchange Commission te
produce by next Monday all reviews and reports it has dene on
Enron Corp. since 3997-

Comittee chairman Representative milly Tauzin and Jares
Greenwood, chairman of the panel's oversight and investigations
subcormittee, made the requeet in a Dec. 7 letter to SEC Chairran
Harvey pitt wed by Tauzin's office today.

““The apparent collapse of the company ban resulted in the
loss of substantially all of the equity value in Enron, and the
loes by many participants of sizeable portions of their retireneat
savings, '' paid Tauzin of Louisiana and Greenseod of Pennaylvania,
both Republicans, “tt alas highlighted the lack of transparency
in Enron's derivative poeitions in the energy market .‘*

Tausin and Greenwood requested SEC reviews of a}i Sure
quarterly snd annual filings with the agency beginning January
1997 up to the date the SEC launched ite cwm forest probe into
Rnron. Tauzin and Greenwood also want all propored edjustrents to
Enron filings submitted to the SRC by Enren auditers.

-Vicky Stanas in Weshingten (202) 624-1998, or
vatamapabloonberg.net /ba

Story Illustration: To compare Enzon's stock performance with
market indexes, type [EME US cBquity> COMP «GO+],

y Dee:
ENE US <equity> CW

mt Codes:
Br ONG
NI RG
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“You'd be hard-pressed to find a house on the Street that didn't do business with Enron," says Don Coxe, chairman
and chief executive of Harris Investment Management Inc., which in early December held 78,000 Enron shares in the
Harris Insight Equity Fund. “They spread a ton ‘of business around the Street, so it's no wonder these analysts were
behind the stock."

Enron says it didn't have a quid pro quo relationship with anyone. “At no time has Enron ever required any financial
firm to endorse our stock as a prerequisite for doing business with the firm,” Says spokesman Vance Meyer.

‘Taps on Shoulders’

Some Wall Street veterans say they don't find that denial persuasive. “Even if there were no spoken agreements, you
can bet analysts often got taps on the shoulders from the investment bankers making sure that they were reminded to
keep ‘buy’ ratings intact,” says Phelps “That's just the way Wall Street works.”

Enron spread the wealth across many Wall Street firms. In May 2001, Enron used six banks — A. G. Edwards & Sons
Inc., Bane of America Securities, Dain Rauscher Wessels, First Union Securities Inc., Salamon Smith Barney Inc. and
UBS Warburg - to manage a $151 million unit offering for Northern Border Partners LP, one of scores of Enron-
controlled partnerships.

Usually, no more than four underwriters are involved in deals that small, investment bankers say

CSFB advised Enron on a pending $2.9 billion sale of Portland General Electric Co. in October — one of 41 separate
mergers and acquisitions transactions Enron initiated since January 1999, according to Bloomberg data,

Enron Activity Dwarfs Rivals.

‘That dwarfs the number of deals over that span announced by rivals Dynegy Inc., which struck 15 corporate
combinations, and Kinder Morgan Inc., which did a dozen deals.

Enron further cemented its relationship with Wall Street by borrowing from banks, obtaining letters of credit and trading
in derivatives -- financial instruments such as futures and ‘options whose value is based on other assets.

‘When Enron filed for bankruptcy in December, its list of creditors was 54 pages long and included Citigroup Inc.,
CSFB's London branch, J. P. Morgan Chase & Co. and UBS.

Goldman Sachs is a dealer for Enron's $4 billion commercial paper program and has arranged six of the company’s 15
preferred share sales.

In June 1999, Merrill Lynch managed the $595 milion initial public offering of Azurix Corp., Enron's water business
Run by Enron's former Vice Chairman Rebecca Mark, who resigned in August 2000, Azurix failed in its strategy to buy
water companies and win large projects. It lost a bid to acquire a 49 percent stake in Berlin's water utility, for example.
Enron Buys Back Stock

Enron bought back the stock in 2001, after it had fallen more than 55 percent during the company’s 16 months as
public entity.

In October, J. P. Morgan and Citigroup's Citibank unit provided Enron with $1 billion in credit lines to help it pay down
debt and meet day-to-day costs. Those loans came just in time for the two firms to win the business of advising Enron
‘on its planned acquisition by Dynegy.

J.P. Morgan and Citigroup's Salomon were set to charge $90 million -- $45 mitkon each -- for that advice, according to
people familiar with the arrangement

Dynegy was set to pay $15 million in advisory fees to Lehman Brothers. That would have been Lehman's biggest such
transaction in 2001

Dynegy Deal Falls Through
in December, after the Dynegy deal fell through, Enron obtained as much gs $1.5 billion in new financing from J. P.

Morgan and Citigroup. On December 11, J. P Morgan filed a lawsuit in Enron's bankruptcy case, seeking $2.1 billion
~ fonds the bank said aren't part of the energy trader's assets shielded from creditors by the Chapter 11 filing

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00900000000063


Carleton, Norman

From: Carleton, Norman

Sent: Thursday. November 01, 2001 2:36 PM

To: Whaley, Jean

Subject: FW: Economist Article on Enron: “Houston, we have a problem”

Origin Message--—-

From: Carleton, Norman

Sent: ‘Thursday, November D1, 2001 2:01 PM

To: Roseboro, Brian; Gross, Jared; Bitsberger, Timothy; Schuitheiss, Heidiynne; Nickoloff, Peter; Cetina, Jil; Sharer, James
Subject: Econceist Article an Enron: "Houston, we have @ probilery*

A financial black hole

Houston, we have a problem

Nov Ist 2001 | HOUSTON, LONDON AND NEW YORK
From The Economist print edition

AP

AP

The troubles of Enron, a Texan powerhouse in the energy markets, could result in a new
financial crisis

JUST last year, visitors to Enron's glittering headquarters in Houston were greeted by a giant banner that
proclaimed the firm, "The world's leading energy company”. That annoyed Enron's smaller energy-trading
rivals, many of which have offices only a stone's throw away in Houston's Energy Alley, but not as much
as what came next-a new banner, declaring Enron “The world's leading company”. In recent weeks, as the
company has been engulfed by a financial crisis, that banner has quietly been removed.

The heady mix of audacity, ambition and arrogance revealed by the banners is as good a guide as any to
Enron's remarkable rise and fall, Forged in the 1980s by the merger of two troubled gas-pipeline firms,
Enron drove the development of the sophisticated spot-and-derivatives markets in energy that it has come
to dominate. Indeed, such is the scale of its operations, and its dealings with many of the world's financial
institutions, that some observers see parallels with Long-Term Capital Management (LTCM), the hedge
fund that failed In 1998-and not just because seemingly brilliant financial alchemists have been humbled.
Were Enron to go bust-unlikely, but in the current nervous climate, not impossible-might a crisis ensue?

Troubles in California's politically crazed power market, an ill-advised foray into telecoms bandwidth
trading and concerns about management badly dented Enron's share price earlier this year, prompting the
departure of Jeffrey Skilling, the firm's newish chief executive, in August, Kenneth Lay, an avid free-
marketeer, friend of George Bush and visionary chairman of the firm, was obliged to resume hands-on
control.

This has not slowed Enron's decline. Day by day, it seems to be sinking deeper into a financial quagmire
that is largely of its own creation. Not least thanks to its lack of transparency, the firm's credibility with
the markets has eroded to the point that talk of a possible takeover or even bankruptcy is widespread.

Enron's reputation for financial wizardry has been turned from an asset to a liability since its third-quarter
results came out in mid-October, showing a $1 billion write-off on water distribution, broadband trading
and other investments. Worse, disclosed only in passing by Mr Lay in a conference call with analysts, the
firm suffered a $1.2 billion reduction in capital, stemming from a hedging deal with a related private-

1

01300000000063


Page 2 of 2

On a conference call, Mr. Skilling said he could not stress enough that this has nothing to do with Enron.” He added
that "the reasons for leaving the business are personal, but I'd just as soon keep that private.”

Mr. Skilling, who is divorced, has joint custody of three teenage children —~ a daughter, 17, and two sons, 14 and 11 —
with his ex-wife. Mr. Skilling, who will leave the board but will serve as a consultant to the company, will not receive
any severance package because his departure is voluntary, Mr. Lay said.

Since May 2000, Mr. Skilling has sold at least 450,000 Enron shares worth at least $33 million, according to Sccurities
and Exchange Commission fitings. He stil] owns about 1.1 million shares, the filings show.

"Absolutely no accounting issue,” Mr. Lay told analysts, "no trading issue, no reserve issue, no previously unknown
problem issues" arc behind the departure. There will be "no change in the performance or outlook of the company going
forward,” he added.

He also said the company was on track to meet analysts’ eamings expectations, which are about $1.80 a share this year
and $2.15 next year.

On the call, Mr. Skilling said that "in general there have been a lot of issues” that have buffeted the company this year,
but he said that he believed Enron had already surmounted most of them. "Now is the time" to step down, he said,
“because I think we've got a lot of these things behind us."

Nonetheless, the move jolted analysts, who, despite the stock's recent slide and the company’s other problems, saw Mr.
Skilling as the unquestioned leader to follow Mr. Lay.

In after-hours trading, shares of Enron fell about 8 percent, to $39.55. That fall follows a plunge of almost 50 percent
since January in the stock, which had closed in regular trading at $42.93, up 78 cents, The news of the executive
changes came after the market closed.

"T'm surprised and I'm stunned,” said Philip K. Verleger, an energy economist with the Brattle Group, a consulting firm
in Cambridge, Mass. "Skilling was the guy who executed the growth in the trading business.”

Investors have become increasingly concemed that a surge in new power plant construction will lead to a glut of
electricity within a few years and lower the value of Enron's role as a middleman between plant owners and electricity
usets. In addition, the company’s efforts to enter the water business have fared poorly, and its broadband trading
operation has become a cash drain.

Mr, Skilling's promotion early this year came after several crucial Enron executives resigned. ‘These included Rebecca
Mark, who at one time was considered a rival for the top job.

Ms. Mark became chief executive of the Azurix Corporation (news/quote) in 1999 after Enron spun off the company, its
global water business. But its financial performance was disappointing, and Ms. Mark left the company last year. Enron
later agreed to buy back Azurix stock for less than half what public shareholders had paid.

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0900000000049


From: Carleton, Norman

Sent: Monday, November 05, 2001 12:19 PM

To: Whaley, Jean

Subject: FW: DJ: Enron Sr. Unsecured Debt Cut To Triple-B-Minus By Fitch

~~ Original Message—--

From: Carleton, Norman

Sent: Monday, November 05, 2001 12:15 PM

To: Rosebora, Brian; Bitsberger, Timothy; Schuheiss, Heidilynne; Nickoloff, Peter; Grass, Jared; Sharer, James; Cetina, Ji
Subject: 0): Enron Sr. Unsecured Debt Cut To Triple-B-Miras By Fitch

November 5, 2001

Enron Sr. Unsecured Debt Cut To Triple-B-Minus By Fitch

NEW YORK -- Fitch downgraded Enron Corp.'s (ENE) senior unsecured debt ratings Monday to
triple-B-minus from triple-B-plus, putting the Houston energy and trading giant's credit rating just one
notch above noninvestment-grade or junk status.

In its action, the rating agency was more aggressive than Moody's Investors Service and Standard &
Poor's, both of which lowered Enron's long-term corporate credit ratings one notch last week to Baa2
and triple-B, respectively.

Fitch said its rating action Monday reflects the difficulties Enron faces in managing its liquidity
position in the face of an erosion in investor confidence. This follows the recognition of a substantial
diminution in value of its global merchant investments, which were partly financed with an aggressive
use of off-balance sheet vehicles, the rating agency said.

Enron, though, should be able to manage through this challenging environment, ultimately
recognizing the values of the company’s core businesses, Fitch said.

In other rating actions, Fitch lowered Enron's subordinated debt to double-B from triple-B, while
Enron's preferred stock was lowered to single-B-plus from triple-B-minus. Fitch cut Enron's
commercial paper to F3 from F2.

Fitch also took action on the senior unsecured debt ratings of Enron's pipeline subsidiaries. The
ratings of those units, Northern Natural Gas Co, and Transwestern Pipeline Co., were lowered to
triple-B-minus from single-A-minus. The assets of Northern Natural and Transwestern were pledged
last week to help Enron secure a new $1 billion secured bank facility,

The rating agency said all of the ratings remain on "Rating Watch Negative" status.

Fitch said it would consider further downgrades if Enron was unable to make ress in reducing
debt, if its wholesale marketing and trading business were to show signs of material deterioration, or
if expenses and charges related to the disposition of non-core businesses and investments exceed
present estimations.

A management priority is debt reduction and the exiting of problem businesses. Clearly, these

actions, if completed as envisioned will reduce risk and improve the company’s credit profile, Fitch
said.

01300000000061


Page 5 of 11

Afghanistan. Some of them have been closely linked to Libya. So they do have links to this broader network of states and movements that have
enabled and supported international terrorism.

PILGRIM; Abu Sayyaf has undeniable ties to al Qaeda, And convicted terrorists have studied in the Philippines, including Mohamed Sadeek
Odeh, who was convicted for helping in the 1998 bombings of the U.S, embassies in Kenya and Tanzania. Also Ramzi Yousef, the mastermind
of the first World Trade Center bombing in 1993.

(END VIDEOTAPE)

(on camera): The U.S. forces will set up a command center in the city of Zamboanga. And also expected, up to 10 helicopters and C-130
aircraft — night flying equipment will give them an added advantage -- thousands of rifles and up to 100 motor vehicles. Lou, the troops have
landed,

DOBBS: Kitty, thank you very much. Kitty Pilgrim.

Well, for more now on the U.S. military presence in the Philippines as well as the transport of the al Qaeda/Taliban fighters to Guantanamo and
the continuing engagement in Afghanistan, I'm joined by Jamie Mclatyre at the Pentagon ~ Jamic.

JAMIE MCINTYRE, CNN MILITARY AFFAIRS CORRESPONDENT: Well, Lou, 1 think one of the key questions about these military
tainers, special forces, going to the Philippines is exactly what they're going to be doing, And CNN has learned the mission guidance that
they've been given allows for armed U.S. observers to travel with Philippine military to forward areas. Now that could potentially put them into
a combat role even as the Pentagon says there are no plans to use them in direct combat, And the Philippine government says that such a use of
troops would require special authorization from their Congress,

But when asked point blank today about what they -- whether they might be engaged in those kind of operations, Secretary Rumsfeld,
following his well established policy, refused to speculate what they might do in the future,

And as for the detainees, the first flight is en route to Guantanamo Bay, Cuba. The United States is employing extraordinary security measures
onboard the plane, keeping the detainees hooded, chained. They're not allowed to get up and go to the bathroom. They're given a bucket for
that purpose. And the U.S, is extremely cautious about what these prisoners could do while they are in a confined airspace. They should arrive
in Cuba by sometime tomorrow and begin to be processed there. And again, extremely tight security and some nervousness even about the
transport of these very dangerous detainees — Lou.

DOBBS: Jamie, thank you. Let me turn, if | may, to Bill Hemmer reporting from Kandahar, who says he heard and saw, of course, saw the
tracer fire as the C-17 taking the al Qaeda and Taliban prisoners to Guantanamo Bay took off. The Pentagon, as I understand it, is not
necessarily comfortable with that report, is that correct?

MCINTYRE: In any case like this they are trying to figure out exactly what happened. The report they got back to the U_S. central command,
was that the major exchange of gunfire occurred after the plane had taken off and was apparently not directed at the aircraft, but directed at the
base, testing the defenses or, you know, an assault there that coincided with the takeoff of the aircraft.

I don't think they are disputing anything Bill Hemmer saw, including some of that tracer fire early on. But they are just saying that at this point,
as they go back and reassess, they don't think that what happened is an attempt to shoot at the aircraft, but rather an attempt to shoot at the U.S.
forces that are at that base in Kandahar.

DOBBS: An indication, Jamie, there at the Pentagon, that there will be a further beefing up of the outer perimeter, which Bill Hemmer reported
‘was at least momentarily breached?

MCINTYRE: Well, they have very tight security there already. So I'm not sure exactly what they'll be doing. But the have — it just
underscores, that this continues to be a war zone in a very dangerous place,

DOBBS: Jamie McIntyre, as always, thank you.
As | mentioned earlier. The first flight carrying the Taliban and al Qaeda prisoners from Kandahar are on their way to the U.S, Naval Base in

Guantanamo Bay, The fact of the matter is CNN military analyst, General David Grange is bere to assess, at least give us his assessment of the
situation.

General, as always, good to have you here, It is interesting we have an eyewitness, one of the few incidents in which we have an eyewitness, a
reporter on the ground and the Pentagon, at least in the initial stages wanting to, if you will, mold a somewhat different story, What's your
reaction?

BRIGADIER GEN. DAVID GRANGE (RET.), CNN MILITARY ANALYST: Well, it depends where you're located at the incident site. A lot
of people see different things.

DOBBS: Exactly.

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Carleton, Norman
From: Schultheiss, Hei

Sent: Monday, October 29, 2001 10:00 AM

To: Carleton, Norman; Nickoloff, Peter

Subject: Europe Energy Firms Are Wary of Enron
October 29, 2001

Europe Energy Firms Are Wary of Enron
By REUTERS

Filed at 9:08 a.m. ET

LONDON (Reuters) - Energy companies in Europe are shying away from trading with troubled U.S. energy
group Enron amid concerns about the company’s credit status, industry sources said on Monday.

Several large energy groups have frozen their dealings with Enron -- one of Europe's biggest gas and power
traders -- as they hold urgent talks with the U.S. group about setting up new credit arrangements, the sources
sai

“'T think Enron's ach is to get the major counterparties back on board as quickly as possible and then hope
the smaller ones will follow," said the head of risk management at one UK utility that halted its trade with
Enron last week.

“They are talking with us about bank letters of credit," he said. *“The people that are still trading with them are
doing so on a very restrictive basis.”

A spokesman for Enron's European headquarters in London headquarters declined to comment.

Reluctance to trade with Enron in Europe comes as the company tries to rebuild investor confidence after its
stock hit five-year lows.

Triggering the slide was news last week the U.S. Securities and Exchange Commission is investigating huge
losses relating to a private equity operation run by its former chief financial officer,

Houston-based Enron trades a large amount of its volume in the U.S. and Europe through its Internet
EnronOnline system.

Last Friday the company said trade on EnronOnline was above average levels with more than 8,400 transactions
at a notional value of approximately $4 billion.

Traders said Enron's plight could hit liquidity in European gas and power markets, where liberalization has
unleashed rapid growth in energy trading in the last couple of years.

One industry source cited a brokers list showing cight companies in the UK electricity market had put on hold
their trading Enron, which is among the biggest five traders in the market.

In mainland Europe, where Enron has been a major driver of liquidity, potential counterparties are treading with
care,

“We are avoiding them as counterparties -- either by not trading with them or by using a ‘sleeve! (a third party
trader)," said a senior trader at one of Germany's big utilities, who declined to be named.

French traders said wariness about dealing with Enron had dampened liquidity although Enron was still in the
market on Monday moming.

“Enron is a major player so counter parties are looking to see if there is a problem," said one French trader.

02642

01300000001251


Page 7 of 11

CNN has learned that 25 special forces soldiers on the ground in the Philippines. They will be there to belp train Philippine troops to hunt
down Muslim rebels tied to al Queda terrorist network. Sources now till CNN that they expect the U.S, deployment to expand to more than 500
troops in the next few months.

President Bush is demanding that Palestinian Leader Yasser Arafat renounce terrorism. President Bush's words come one day after U.S.
officials said there is now credible evidence that Arafat's Palestinian authority was involved in an arms shipment imercepted by Israel,

As we mentioned, Treasury Secretary Paul O'Neil is joining us. He is at the center of the war against terrorism, searching out, freezing
terrorist assets around the world. He is also helping to manage the fallout from an economy in recession and now involved in the Enron disaster
and its investigation.

‘There is word tonight that the entire U.S. attorney's office in Houston has recused itself from the Enron investigation. Treasury Secretary Paul
O'Neill joins me now.

Mr, Secretary, good to have you here.
PAUL O'NEILL, U.S. TREASURY SECRETARY: Nice to be with you, Lou,

DOBBS: These are extraordinary developments in terns of Enron: the attorney general recusing himself, the president now for the first time
having to deal with the issue from the White House; the reports of your conversations between Ken Lay, twice, once in October, once in
November; and then his calls also to Commerce Secretary Evans as well as subsequent conversation between the two of you. If I may, sir, fd
just like to ask you what you and the commerce secretary discussed and what your decision was?

O'NEILL: Well, as you say, Lou, I had ~~ my first call from Ken Lay was for him to give me a heads-up that they were struggling and to offer
the president of his company to speak with the undersecretary for domestic finance to understand the positions that they had to make so that we
could make sure that we were taking care of our responsibility which is to make sure that the US. capital markets work, And that was the
purpose of Ken's call to me, to let me know that we were welcome to have access to information so we could understand what they were doing
and understand the possible exposure for the world’s capital markets. The second call to me was — I've forgotten exactly when, but Ken called
me to tell me that they were in discussions with Dynegy. And it was an information only call. And subsequent to that, Don Evans called me to
tell me that he'd had a call from Ken and that Ken had told him that their ~ rating agencies were looking at them and there was a real concern
that if the rating agencics downgraded them, that that could had effectively scuttle the deal with Dynegy. And I went down..,

DOBBS: Which it subsequently did.
O'NEILL: Excuse me?
DOBBS: Which it subsequently did.

O'NEILL: That's right. And when Don called me, and we talked about it, we agreed there wasn't anything within our responsibilities that
required us to do anything. And that was the end of it.

DOBBS: Were you asked at anytime by Ken Lay to do anything specific?
O'NEILL; I was not, Absolutely not.

DOBBS: An extraordinary statement today, the president said that he had not discussed the financial problems of Enron with Ken Lay. And!
would like t ask you at any point have you discussed the financial problems of Enron with Ken Lay over the course of your tenure as

Treasury secretary?

O'NEILL: Well, the only contact I had with Ken on the subject of Enron was the two times that he called me that have been reported. And 1
‘must tell you, I thought it was business as usual. | mean, as secretary of the Treasury with the responsibility for the U.S. capital markets and
our position in world capital markets, ! get calls every day from the big players in the world. Enron was the biggest trader of energy in the
world. And so I was not surprised at alll that | would get a call saying, bey, we've got 2 problem over here and you should know about it,
DOBBS: Although, you were, I'm sure, aware that on November 2, the auditor, head of the auditing firm Andersen had said to the finance
committee, the Financial Institutions Committee, that in fact they had said that there were criminal violations as a result of their own early
investigation, would that be correct?

O'NEILL: I have no idea, You're telling me something I don't know.

DOBBS: You were not aware then?

ONEILL: Absolutely not.

02721

01300000001330

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The 7th Annual Repo & Securities Lending Conference Page 2 of 6

8,00 - 8:30 a.m

8:30 - 9:00 a.m

Welcome

9:00 - 10:15 a.m.

Moderator

Panelists

10:15-10:30 a.m.

10;30-11:30 a.m.

Moderator

Panelists

Breakfast
Featured Speaker

Dino Kos

Executive Vice President

Federal Reserve Bank of New York

Joseph Blauvelt, Managing Director, J.P, Morgan Chase & Co,

Head of Funding Desk Roundtable

The far-reaching impact of September 11 affected the financial markets, and in
particular created special challenges for the funding desks of financial institution
global heads of funding desks from major institutions will address the impact of
September 11 on the funding markets, In addition to discussing how the funding
markets dealt with such challenges, panelists will also discuss what lessons were
fearned. In addition, the panelists will reflect upon any potential longer-term effe
the funding markets may experience.

Paul Saltzman

Executive Vice President

General Counsel, The Bond Market Association

Joseph Blauvelt

Managing Director

J.P. Morgan Chase & Co,

John Kruger

Director

Salomon Smith Bamey

Paul Scheufele

Managing Director

Credit Suisse First Boston

Gerald Tamburro

Managing Director

UBS Warburg

Break

Legal & Regulatory Update

‘A thorough review of the latest legal and regulatory developments in the funding
markets, Subjects to be addressed include (i) changes in banking regulation, incl

a review of the proposed Basel Accord (ii) emergency regulatory responses to th
events of September 11, (iii) changes to the Investment Company Act, (iv) bankr
reform, and (v) pending regulatory reform.
Ranada Fergerson

Managing Director

Bear, Steams & Co. Inc.

Sibyl Peyer

Vice President

Assistant General Counsel

Goldman, Sachs & Co.

Robert Cook

Partner

Cleary, Gottlieb, Steen & Hamilton

02896

file://(C:AWINDOWS\Temporary%20Internet%20Files\OLK303 1 repo. htm V/15/02

01300000001505


Enron was one of Andersen's largest clients, generating $25 million a year in audit fees and $27
million of fees for consulting. Enron, a high-flying energy company which last year ranked No. 7
on the Fortune 500 list, announced big losses last October in off-balance-sheet partnerships run
by former Chief Financial Officer Andrew Fastow. In early November, Enron acknowledged it had
overstated earnings by $569 million over a four-and-a-half year period and said investors could
not rely on its past financial statements.

The SEC launched a formal investigation into Enron's accounting on Oct. 31.
Write to Judith Burns at judith.burns@dowjones.com'"

02735

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Page 8 of 11

DOBBS: Mr. Secretary, at this point, the SEC has an investigation, the Justice Department, the Labor Department, is there a significant and
large role for the Treasury Department in the investigation of Enron bere?

O'NEILL: No, I don't think so at all. Today the president asked me to do two different things, one, to bead a committee that includes Don
Evans, the secretary of commerce, and Elaine Chao at the Labor Department, to look at the Enron case and to other bankruptcy cases, to pay
special attention to the question of whether we necd to amend the rules that govern pension plans and 401(k) plans to provide a greater degree
of assurance to the individuals who have a stake in pension plans and 401(k) plans. And this is driven by the president's concem about the
individual employees.

He's seen stares on television about people who lost all of the money that they bad accumulated in 401(k) plans, that represented their life
savings. And the president said to me, we need to see if there's something we need to do. This is really a — this ts a tragic circumsstance for

these individuals. And so you should have a committee, include Elame Chao because of ber Labor Department responsibility, and Don Evans,
and let's see if there’s something we need to do so that we learn from this. If there is a weakness in our rules, let's fix the rules.

And the second committee the president asked me to convene is a standing committee, that's the president's economic committee. It includes
myself, and Alan Greenspan, the head the Commodities Future Trading Corporation, and Harvey Pitt at the SEC. And the charge the president
has given us there is to Jook at the Enron case and other cases and see if in this ever more complicated world we need to adjust the disclosure
tules so that shareholders, employees, have all the information that they need to make intelligent ¢ decisions,

So this is not about Enron. This is about making sure that the rules and regulations that govern the way our economic system works are worthy
of the conditions that we're dealing with these days to assure first and foremost that individuals are not hurt because of a weakness in the rules,

DOBBS: Mr, Secretary, you are certainly taking the long view when you say this is not about Enron and [ understand I believe the implications
to what you're saying, but for the foreseeable future, it will definitely be about Enron in the way in which thousands of employees lost their 401
(k)s, pensions, bond funds, and the investors in them lost a considerable amount of money. And so would you rate this as a significant and
large task you have to assure protection for investors and employees in the years ahead’

O'NEILL: Well, I don’t know. I think | was asked this question carlier today and I said this, I'm one who believes before you do prescription,
you do analysis.

DOBBS: Right.

O'NEILL; If you think about this in a medical metaphor, you wouldn't want the doctor to start cutting your arms and legs off before be figured
out what was wrong with you, And so I don't know what we should do. I have a clear idea what the president asked me to do and we will do it.

DOBBS: Mr. Secretary, I have no doubt. We want to go to your colleague in the cabinet immediately after this short break. We're going to be
talking with Commerce Secretary Don Evans next. Stay with us.

(COMMERCIAL BREAK)

DOBBS: The world of moncy laundering, corruption and the role played by big corporations is the subject of a new novel by Stephen Cannell
and Shane Sculley. A character that Stephen Cannell created is one of my very favorites, so it is good to have you here.

STEPHEN CANNELL, AUTHOR, "THE VIKING FUNERAL”: Nice to be here.

DOBBS: Some of our audience may be wondering why you and [ are talking about this. And the reason is, one of the earliest questions I was
asked, as matter of fact, in the state of Texas, after September 11, if we're being so successful in this war on terrorism, why in the world weren't
we so successful in the war against drugs? Your book begins to suggest sorne answers to that.

CANNELL: Yeah, I think we're being very lazy about some aspects of law enforcement, and if we don’t prosecute these cases, you know, we
aren't going to be able to shut down a good portion of the drag business.

You know that interdiction takes about 10 percent of what comes across the border, our best guess,

DOBBS: Our best guess.

CANNELL: So, what does that tell us? That means that if we are going to hit these guys, way you are going to hit them is by getting their
laundries, And if you don’t shut these laundries down then they continue to profit from their drug business and they continue to set-up new
businesses and expand.

And we have in our grasp here, I think, the opportunity to shut down some of these big laundries. 02722

DOBBS: How much time did you spend researching the book?

CANNELL:; Quite a bit. I started with some custom officials. Worked very closely with a guy named Bill Gately (ph) , who was the ASACK in
1/15/02

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0900000000141


The 7th Annual Repo & Securities Lending Conference Page 6 of 6

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02900

file://C\WINDOWS\Temporary%20Internet%20Files\OLK3031\repo.htm 1/15/02

01300000001509


Enron Credit Exposures Widely Dispersed Through Global Financial System Page 3 of 3

natural counterparties on derivative transactions, which are otherwise &
relatively small group of companies, Those with Enron exposure often sought
to protect themselves by obtaining credit protection on the Enron name in the
form of credit default swaps, LOCs, or guarantees. Information on the amount
of these contracts is hard to obtain, although the contracts were sometimes
entered into by CDO structures. Also, about $2.7 billion exists in the form of
structures involving smaller baskets of corporate names as reference parties.
(See the Standard & Poor's article on this subject, "Credit Derivative Exposure
to Enron is $6.3 Billion,” dated Nov. 30, 2001.) Much of the derivatives
exposure, however, may be on the part of the typical clients of Enron, the end
users of energy. It is also possible that some additional exposure may come
to light in the financial services industry.

The insurance industry provided at least some of the credit protection on
these derivative transactions. As yet undetermined is the property-casualty
insurance industry's exposure to Enron through issuance of performance
bonds in connection with forward-purchase contracts sold by Enron and its
affiliates. Although a few insurers~—most notably Chubb Corp., with an
announced exposure of $220 million—have publicly stated their exposure to
such liabilities, the large majority have yet to announce the exposure
publicly. Standard & Poor's continues to research this matter to determine
more definitive conclusions and is examining other potential insurance
exposures

Other energy companies also have exposure to Enron, much of it derivatives
related. Standard & Poor's is stil trying to assess the extent of such exposure.

‘This report was reproduced from Standard & Poor's RatingsDirect, the
premier source of real-time, Web-based credit ratings and research from an
organization that has been 2 leader in objective credit analysis for more
than 140 years. To preview this dynamic on-line product, visit our
RatingsDirect Web site at www.standardandpoors.com/ratingsirect,
Standard & Poor's.

Setting The Standard.

|@

Published by Standard & Poor's, @ Division of The McGraw-Hil Companies, Inc. Executive offices: 122%
Avanue of @r Americas, New York, NY 10020. Editorial offices: 65 Water Streat, New York, NY 10041
Subsorber services: (1) 292-438-7280. Copyright 2001 by The McGraw-Hit Companies, Inc
Reproduction in whole oF in paet prohibited except by permission. All rights reserved, Infarmation has
been obtained by Standard & Poor's from sourcas believed to be reliable. However, because of he
possibilty of human of mechanical ervor by ow sources, Standard & Poor's or others, Standard &
Poor's does net guarantee the accuracy, adequacy, or compiataness of any information and 16 mee
responsible for any errars oF omiessions cr the resull obiainad from the use of such informaiton,

‘are stale ments of opirion, not statements of fact or recommendations to buy, hai, or sali any
socurties.

02853

file.!/C:\WINDOWS\Temporary"%20Intemet%20Files\OLK3031 \SPEnron,htm 1/15/02

01300000001462


Carleton, Norman

——
From: Bair, Sheila
Sent: Thurséay, January 10, 2002 4:54 PM
To: Carleton, Norman
Subject: RE: DJ: Arthur Andersen Says It Destroyed Documents Retated to Enron Account
very interesting. Norm, these clips are helpful.
a | Message

From: Casteton, Norman

Sent: Thursday, Janwary 10, 2002 4:50 PM

To: Cetina, 3il; Bair, Sheila; Berardi, Steve; Bitsderger, Timothy; Eichner, Matthew; Gabllondo, Jose; Gross, Jared; Hammer, Ya; Lon

Sanatamorena (E-mail); Nickoloff, Peter; Novey, Michael; Pletrangell, Frec; Rosebora, Srian; Schultheiss, Heid@ynine; Whaley,
Jean; Wiedman, Mark
Subject: DJ: Arthur Andersen Says Tt Destroyed Documents Related to Enron Account

January 10, 2002

Major Busi '

Arthur Andersen Says It Destroyed
Documents Related to Enron Account

By JupitH Burns
Dow Jones Newswires

WASHINGTON -- Arthur Andersen LLP, already under fire for its audits of Enron Corp., said it
hes destroyed documents sought by federal law enforcement officials investigating the Enron
acle.

In a statement issued Thursday, Andersen said it notified the U.S. Justice Department and the
Securities and Exchange Commission that individuals at the firm "disposed of a significant but
undetermined amount" of documents relating to its work for Enron, The Houston energy company
Steaming bankruptcy in December after announcing it had overstated four-and-a-half years worth
of earnings.

The document destruction includes paper documents and e-mail correspondence.

Andersen said it has instructed employees to retain all existing documents "until further notice.”
In addition, the Chicago-based Big Five accounting firm said it has asked former Sen. John
Danforth (R., Mo.) to conduct "an immediate and comprehensive review” of the firm's policies on
document handling and recommend improvements.

Andersen said destruction of Enron documents occurred "in recent months” by individual
employees involved in auditing the energy company.

Michael Donovan, a Philadelphia attor with Donovan Searles, LLC, which has filed a class-
action lawsuit against Andersen on behalf of Enron shareholders, said document destruction by
an audit firm is shocking.

“Auditors save everything,” including all work papers for audit clients, Mr, Donovan commented.
' 02734

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00900000000110


Enron Credit Exposures Widely Dispersed Through Global Financial System Page 2 of 3

Among banks, the highest exposures in dollar terms are to be found at
Enron's lead banks, J.P. Morgan Chase and Citigroup; however, much of the
exposure is secured. Some European banks also have sizable exposures
(Abbey National PLC disclosed $160 million, and ING GROEP N.V. disclosed
$195 million in unsecured loans and bonds), although much of it is secured by
@ variety of assets including expected revenues and receivables generated by
projects financed. In Germany, Deutsche Bank AG and Commerzbank AG
disclosed less than Eur100 million each. The Australian banks have $350
milion between them. Canadian bank exposures are manageebie as well.
Japanese bank exposures add to their woes but will not be a deading factor.
‘While losses on exposures could be material in some cases, as of this date,
they do not appear by any means life threatening, Standard & Poor's
estimates of losses would not represent a hit to equity and so would not in
themselves represent a rating consideration. However, these exposures will
be reviewed in the context of other looming problems in the industry, including
eamings weakness and mounting credit problems.

Asset managers atso have $3.8 billion of Enron exposures in their funds,
according to Capital Access International, the fixed-income market research
company. Such exposures would present an issue in the Japanese money
market funds that are in danger of “breaking the buck,” allhough none of these
were rated by Standard & Poor's.

As of this date, the estimated direct exposure of U.S. insurers’ asset portfolios
to securities issued by Enron and its affiliates is more than $3.5 billion, which
is not likely in itself to negatively affect the ratings of those insurers.

The exact total of insurers’ asset exposure will take some time to resolve
because many insurers liquidated some or all of their holdings in the weeks
preceding Enron's bankruptcy filing on Dec. 2, 2001. However, Standard &
Poor's estimates that at year-end 2000, most of this asset exposure, about
$2.6 billion, was with life insurance companies, primarily fixed-income
investments.

the life insurers making early announcements of their exposure was
John Hancock Life Insurance Co., which reported a net investment exposure
of $320 million, for which it would be taking a fourth-quarter charge of up to
$125 milion. (See the Standard & Poor's commentary article “Enron Impact
‘on U.S. Insurers’ Asset Portfolios Not Likely to Affect Ratings" dated Dec. 5,
2001.)

The portfolio management discipline of domestic insurers in their asset
management has become ever more sophisticated in recent years, and for the
most part, 2 key tenet was the avoidance of excessive exposure to any one
credit. This, combined with the maintenance of strong capital redundancies at
most companies, has left most U.S. insurers with ample capital cushions to
absorb any net losses likely to result.

However, whatever the effects of this particular credit event on insurance
companies’ asset portfolios, Standard & Poor's cautions that it occurs in an
environment of generally deteriorating credit quality across numerous
industries. The cumulative effects of that environment could eventually have
adverse rating consequences for individual insurance companies with
proportionately greater exposure to the most severely affected industries,

The derivatives exposures present a more complicated and incomplete
picture, As a triple-B" category credit in a market that prefers very high credit,
Enron frequently had to put up collateral to enter into trades with its
counterparties, which were generally commercial and investment banks,
utilities, and other power companies. In order to minimize cash needs, it often
substituted surety bonds from insurance companies or LOCs or guerantees
from commercial banks and others, This transferred the risk beyond the

file://C:\WINDOWS\Temporary%20Internet%20Files\OLK303 I\SPEnron.htm 1/15/02

NW
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00900000000055


Carleton, Norman

From: Schultheiss, Heidilynne

Sent: Monday, October 29, 2001 3:52 PM
To: Carleton, Norman, Nickoloff, Peter
Subject: House “stimulus” package showering $254 milion on Enron

Enron Is mentioned in the third paragraph -- | highlighted the text in red ...

October 27, 2001

How to Lose a War

By FRANK RICH
Welcome back to Sept. 10.

The “America Strikes Back" optimism that surged after Sept, 11 has now been stricken by the multitude of ways
we're losing the war at home. The F.B.1. has proved more effective in waging turf battles against Rudy Giuliani
than waging war on terrorism. Of the more than 900 suspects arrested, exactly zero have been criminally
charged in the World Trade Center attack (though one has dicd of natural causes, we're told, in a New Jersey jail
cell). The Bush team didn't fully recognize that a second attack on America had until more than a week
after the first casualty. The most highly trumpeted breakthrough in the hunt for anthrax terrorists - Tom Ridge’s
announcement that "the site where the letters were mailed” had been found in New Jersey - proved a dead end.
And now the president is posing with elementary-school children again.

Given that this is the administration that was touted as being run with C.E.O. clockwork, perhaps it should be
added to the growing list of Things That Have Changed Forever since Sept. 11, But Ict’s not be so hasty. Not
everything changes that fast - least of all Washington. The White House's home-front failures are not sudden,
unpredictable products of wartime confusion but direct products of an ethos that has been in place since Jan. 20.

This is an administration that will let its special interests - particularly its high-rolling campaign contributors
and its noisiest theocrats of the right - have veto power over public safety, public health and economic prudence
in war, it turns out, no less than in peacetime. When anthrax struck, the administration's first impulse was not to
secure as much Cipro as speedily as possible to protect Americans, but to protect the right of pharmaceutical
companies to profiteer, The White House's faith in tax cuts as a panacea for all national ills has led to such
absurdities as this week's House "stimulus" package showering $254 million on Enron, the recling Houston
energy company (now under S.E.C, investigation} that has served as a Bush campaign cash machine,

Airport security, which has been enhanced by at best cosmetic tweaks since Sept. 11, is also held hostage by
campaign cash: As Salon has reported, ServiceMaster, a supplier of the low-wage employees who ineptly man
the gates, is another G.O.P. donor. Not that Republicans stand alone in putting fat cats first. In a display of
bipartisanship, Democrats - lobbied by Linda Hall Daschle, the Senate majority leader's wife - joined the
administration in handing the airlines a $15 billion bailout that enforces no reduction in the salaries of the
industry's C.E.O.'s even as they lay off tens of thousands of their employees.

To see how the religious right has exerted its own distortions on homeland security, you also have to consider
an administration pattern that goes back to its creation - and one that explains the recent trials of poor Tom
Ridge.

Mr. Ridge is by all accounts a capable leader - a successful governor of a large state (Pennsylvania) who won
the Bronze Star for heroism in Victnam. A close friend of George W. Bush, he should have been in the
administration from the get-go, and was widely rumored to be a candidate for various jobs, including the vice
presidency. But after being pilloried by the right because he supports abortion rights, he got zilch. Instead of Mr.
Ridge, the administration signed on the pro-life John Ashcroft and Tommy Thompson - who have brought us
where we are today.

The farcical failures of these two cabinet secretaries are not merely those of public relations - though Mr.
Thompson often comes across as a Chamber of Commerce glad- hander who doesn't know his pants arc on fire,

02636

01300000001245


Page 1 of 3
Carleton, Norman

From: Carleton, Norman

Sent: Thursday, August 23, 2001 4:32 PM

To: Novey, Michael; Hammer, Viva; Eichner, Matthew
Subject: FW: Enron article (2)

Tracking: Recipient Delivery Read
Novey, Michael Delivered: 8/23/01 4:32 PM Read: 8/24/01 9:38 AM
Hammer, Viva Delivered: 8/23/01 4:32 PM
Eichner, Matthew Delivered: 8/23/01 4:32 PM Read: 8/23/01 10:59 PM

~---Original Message----

From: Norman Carleton [mailto:Norman.Carleton@worldnet.att.net)
Sent: Thursday, August 16, 2001 11:43 PM

To: Norman Carleton; norman.carleton@do.treas.gov

Subject: Enron article (2)

@

AUG 16, 2001

Enron Head Seeks to Reassure Staff

By REUTERS

Filed at 4:48 p.m. ET 02929

HOUSTON (Reuters) - The chairman of Enron Corp. (news/quote) (ENE.N) on Thursday sought to reassure
employees that the energy giant's business was on firm footing as its stock faced a second day of brutal
pressure on Wall Street, following a top executive's shock resignation.

Kenneth Lay told employees at a companywide meeting that Enron's business was strong, despite the
extended pressure on its stock and heir apparent Jeff Skilling's unexpected resignation as president and
chief executive officer.

Lay, who was met with a standing ovation when he took the podium, touched on a wide variety of topics
during the 90-minute meeting during which he took questions and presented financial data he said proves
the company is strong.

“We've got a lot of great stuff going on and we're not getting much credit for it in the marketplace, but we
will," Lay said. “| do think the next several months and few years are going to be great for Enron.”

His comments came as Enron's stock saw its worst day in 19 months, closing down $3.40 or 8.5 percent at
$36.85 on the New York Stock Exchange. That brings its losses to roughly 13 percent since Skilling
announced his resignation after the market's close Tuesday.

Lay said he believed the energy giant's stock can sustain a price-to-eamings (P-E) multiple of 25-30 going
forward. It is about 20 right now, based on Wednesday's close.

**| think the current business model can easily justify a 25-30 P-E, with the current business model and in the
current market," Lay said. “We can't get that 40-50 P-E back until we get our retum on capital investment
W/15/02

01300000001538


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Page 1 of 2
Carleton, Norman

From: — Carleton, Norman

Sent: Thursday, August 23, 2001 4:32 PM

To: Novey, Michael; Hammer, Viva: Eichner, Matthew
Subject: FW: Enron articie

Tracking: Recipient Delivery Read
Novey, Michel Delivered: 8/23/01 4:32 PM Read: 6/24/01 9:37 AM
Hamener, Viva Delivered: 8/23/01 4:32 PM
Eichner, Matthew Delrvered: 6/23/03 4:32 Lal

---—Original Message--~-~

From: Norman Carleton [mailto:Norman.Carleton@worldnet. att.net)
Sent: Thursday, August 16, 2001 11:39 PM

To: Norman Carleton; norman.carleton@ido.treas.gov

Subject: Enron article

‘gl

AUG 15, 2001
Enron's Chief Executive Quits After Only 6 Months in Job

By RICHARD A. OPPEL Jr. with ALEX BERENSON

| & p |ALLAS, Aug. 14 — Jeffrey Skilling, the chief executive of the Enron Corporation (news/quote), stunned Wall
“Street today by announcing that he would quit after just six months in the job, calling the move a “purely

personal decision.”

But the abruptness of the departure left many analysts questioning whether @ series of setbacks the company has
suffered played a part in the decision.

Kenneth Lay, Enron's 59-year-old chairman, will step back into the position he left carly this year after 15 years as chief
executive,

Mr. Lay, who originally recruited Mr. Skilling to Enron, said tonight that he had agreed to stay on through the end of
2005 to "make sure we've got plenty of time to work out an orderly succession.”

Mr, Skilling, 47, had been at the heart of the transformation of Enron from an old- line natural gas pipeline company to
the biggest and most aggressive of the new breed of unregulated energy traders that buy and sell billions of dollars of
electricity and other commodities daily.

That strategy helped Enron's stock price soar during the last decade. But this year the company’s shares have fallen
sharply, as Enron has suffered from problems with its new broadband telecommunications trading unit, its investment in
a large power plant in India, and criticism from officials in California, who blame Enron and other energy companies fo
the collapse of the state's electricity market.

‘A former energy consultant at McKinsey & Company who joined Enron in 1990, Mr. Skilling built its energy-trading
operations into the company's most profitable unit, accounting for nearly $1.7 billion — or 85 percent ~~ of operating
income last year. He became president and chief operating officer in 1997, and in February of this year became chicf
executive.

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Page | of 2
Carleton, Norman

From: Norman Carleton
Sent: Thursday, August 16, 2001 11:39 PM
To: Norman Carleton; norman.carleton@do.treas.gov

Subject: Enron article
)

py!
AUG 15, 2001
Enron's Chief Executive Quits After Only 6 Months in Job

02650

| fo ALLAS, Aug. 14 — Jeffrey Skilling, the chief executive of the Enron Corporation (news/quote), stunned Wall
Street today by announcing that he would quit after just six months in the job, calling the move a "purely
personal decision.”

By RICHARD A. OPPEL Jr. with ALEX BERENSON

But the abruptness of the departure left many analysts questioning whether a serics of setbacks the company has
suffered played a part in the decision.

Kenneth Lay, Enron's 59-year-old chairman, will step back into the position he left carly this year after 15 years as chief
executive.

Mr. Lay, who originally recruited Mr. Skilling to Enron, said tonight that he had agreed to stay on through the end of
2005 to “make sure we've got plenty of time to work out an orderly succession.”

Mr. Skilling, 47, had been at the heart of the transformation of Enron from an old- line natural gas pipeline company to
the biggest and most aggressive of the new breed of unregulated energy tradcrs that buy and sell billions of dollars of
electricity and other commodities daily.

‘That strategy helped Enron's stock price soar during the last decade. But this year the company’s shares have fallen
sharply, as Enron has suffered from problems with its new broadband telecommunications trading unit, its investment in
a large power plant in India, and criticism from officials in California, who blame Enron and other energy companies fo
the collapse of the state's electricity market.

A former energy consultant at McKinsey & Company who joined Enron in 1990, Mr. Skilling built its energy-trading
operations into the company's most profitable unit, accounting for nearly $1.7 billion — or 85 percent — of operating
income last year. He became president and chief operating officer in 1997, and in February of this year became chief
executive

On a conference call, Mr. Skilling said he could not "stress enough that this has nothing to do with Enron.” He added
that "the reasons for leaving the business are personal, but I'd just as soon keep that private.”

Mr. Skilling, who is divorced, has joint custody of three teenage children — a daughter, 17, and two sons, 14 and 11 —
with his ex-wife. Mr. Skilling, who will Icave the board but will serve as a consultant to the company, will not receive
any severance package because his departure is voluntary, Mr. Lay said.

Since May 2000, Mr. Skilling has sold at least 450,000 Enron shares worth at least $33 million, according to Securities
and Exchange Commission filings, He still owns about 1.1 million shares, the filings show.

"Absolutely no accounting issue,” Mr. Lay told analysts, "no trading issuc, no reserve issue, no previously unknown
1/15/02

01300000001259


From: Carleton, Norman

Sent: Tuesday, November 20, 2001 5:13 PM

To: Sharer, James, Cetina, Jill

Subject: FW: DOW JONES NEWSWIRES: Dynegy Won't Comment On Merger Partner Enron's 10-Q

---—Original Message---—

From: Carleton, Norman

Sent: Tuesday, Noveniber 20, 2001 5:13 PM

To: Roseboro, Brian; Bair, Shella; Wiedman, Mark; Btsberger, Timothy; Gross, Jared; Schutheiss, Meidihrine; Nickoloff, Peter; Berardi,
‘Steve; Pietrangell, Fred; Whaley, Jean; Novey, Michael; Eichner, Matthew; Hammer, Viva; Gabilondo, Jose; 'Lan Sanatamorena (E-
mally’

Subject: DOW JONES NEWSWIRES: Dynegy Wont Comment On Merger Partner Enron's 10-Q

November 20, 2001

Dynegy Won't Comment On Merger Partner Enron's 10-Q

By CHRISTINA CHEDDAR

Of DOW JONES NEWSWIRES

NEW YORK -- Dynegy Inc. (DYN) declined Tuesday to comment on whether its merger with Enron
Corp. (ENE) would be affected by the contents of Enron's quarterly filing with the Securities and
E: nge Commission late Monday.

In the 10-Q, which was filed five days past the SEC deadline, Enron revised its third-quarter earnings
downward by 3 cents a share, and disclosed it may have to pay off a $690 million note owed to an
affiliated partnership because a clause in a financial agreement was jered by the reduction in
Enron's senior unsecured debt rating to triple-B-minus by Standard & Poor's a week ago.

The amount will have to be pai by Nov. 27 if Enron doesn't find collateral to guarantee the debt, the
company said in the filing. Enron is working to come up with an acceptable agreement on the debt,
but didn't disclose who holds the note.

Enron used partnerships in order to hedge its investment risk, and in some cases to keep the debt
off its balance sheet. The practice is being investigated by the SEC and by an internal committee
nron nal le

In the filing, Enron also said it may have to take a $700 million pretax charge to earnings for the
declining value of assets held by another partnership, Whitewing LLP.

When asked if Dynegy had known about the collateral call on the debt or about the decline in
Whitewing's value, a Dynegy spokeswoman declined to comment.

“We are referring all questions about the Enron 10-Q to Enron,” said the spokeswoman.
Representatives of Enron weren't immediately available for comment.

Dyn agreed to buy Enron earlier this month. Earlier Tuesday, the deal was worth about $11.97
illion in k, but Enron shares were trading at a 32.5% discount to the offer price earlier Tuesday
morning, which is a sign of the uncertainty surrounding the transaction.

1

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Security: ENE (Common Stock)

Click for historical price lookup

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carnest a decade ago, the power business was a simpler affair. Utilities were given areas of monopoly service,
and their rates - and ability to deliver enough electricity - were overseen by state regulators. But with the move
to deregulate the business, independent and unregulated generators and traders have flourished, providing an
ever-growing portion of the nation's power.

Beginning in the 1980's, the sale and transportation of natural gas was also deregulated, spurring Enron, which
used to be primarily a gas-pipeline company, to move into the trading business.

The company’s shift to trading gas and electricity accelerated in the mid-1990's, with the ascension of Mr.
Skilling, who became chief executive in February, just six months before his unexpected resignation.
Underscoring the change in direction, in securities filings this year Enron described its principal business as
"security brokers, dealers and flotation." Before, it had said it was in the business of "wholesale-petroleum and
petroleum products.”

For most of its ascent, Enron rted outstanding profit figures and Wall Street accepted them with pleasure. A
year ago, when it disclosed the first transactions with partnerships led by Mr. Fastow, the company's former
chief financial officer, analysts who asked questions were told that the deals were routine and were being
disclosed only because of Mr. Fastow's involvement.

Enron does not appear to face an immediate cash crunch. But the bank credit lines that it drew on last week to
pay off its short-term debt will have to be renegotiated next spring. The controversial partnerships do not have
to pay their debts until the following year - unless Enron loses its investment-grade credit rating before that.

ENRON will also need to maintain its large trading positions, which could suffer if participants in those markets
grow more nervous about Enron's credit. When Long-Term Capital was stumbling in 1998, some Wall Street
rivals sold the securities they thought Long-Term owned, trying to force Long-Term to sell its positions quickly
and at a loss. Something similar in energy markets might be possible. If so, Enron might find, as Long-Term
did, that positions that should offset each other do not.

Enron's new chief financial officer may yet persuade investors that in fact the company's profits are real, and
that its condition is better than the short-sellers believe. As questions are answered, confidence, and the share

price, could rebound.
But for now, investors are skittish, and some competitors are cager to take advantage of Enron's plight.

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