Opinion ID: 658104
Heading Depth: 2
Heading Rank: 1

Heading: Underlying Fraud

Text: 2 Enron Corporation and its subsidiaries Enron Oil and Enron International (collectively, Enron or plaintiff) are Delaware corporations with their principal places of business in Houston, Texas. Enron is engaged in the business of trading petroleum and petroleum products. It hired Louis Borget in 1984 to oversee its oil trading activities and Thomas Mastroeni to maintain its trading accounts and books. At the same time, the firm established trading policies and limits designed to restrict its market exposure and to protect it from large trading losses. 3 Beginning in 1985, according to the complaint Enron filed, Borget and Mastroeni--acting in concert with others--defrauded and stole from Enron by entering into a series of trades exceeding Enron's internal trading limits. Plaintiff alleges that by the time this multifarious scheme came to light in October 1987, Borget and Mastroeni had misappropriated $5.9 million from the firm. Enron asserts that Borget and Mastroeni also left it with open positions on the market that the firm was required to cover at a cost to it of an additional $142 million. 4 Plaintiff further alleges that as part of their fraudulent plan Borget and Mastroeni actively deceived Enron's independent auditors. For example, in March 1987, realizing that an inspection of Enron's open market positions was scheduled, they instructed Enron oil trader Robin Eves to enter into four separate contracts to sell one million barrels of unleaded gasoline to the Bulk Oil Company, and at the same time to enter an agreement with Bulk Oil that these four contracts would never be executed. Eves undertook these transactions with Bulk Oil's executive vice president, defendant Ronald Fuchs, on March 13, 1987. The purported transfers--which Enron now insists Fuchs knew were sham contracts--effectively camouflaged from its financial examiners Enron's actual trading position. 5 Fuchs responds that he thought the transactions proposed by Eves were typical roll-over deals. In any event, he continues, since the dollar amount involved was outside of his trading authority, he brought the proposal to the attention of Bulk Oil's president, Jacob Schreiber, who approved the contracts as a routine transaction. When Enron then failed to confirm its end of the arrangement, Schreiber told Fuchs to cancel the contracts, which was done. Fuchs avers that he never spoke with anyone at Enron other than Eves, and had no knowledge that the aborted transactions were outside Enron's trading limits or designed to evade its auditors' inspection.