In a second report on the complex financial dealings at Enron Corp., the court-appointed examiner has concluded that the former trading firm used six accounting techniques within its special purpose entities (SPE) to “engineer its financial statements so that they diverged materially from Enron’s actual economic condition and performance.” The SPEs apparently accounted for 96% of Enron’s $979 million in net income for 2000, and allowed it to report debt of only $10.2 billion instead of $22.1 billion.

Examiner Neal Batson’s report, which is nearly 2,000 pages long, was issued late Wednesday to the U.S. Bankruptcy Court for the Southern District of New York. The independent examiner found that “perhaps the single most important distinguishing characteristic of Enron’s use of SPEs to manage its financial statements is the magnitude of the impact that these efforts had on Enron’s financial statements.”

In some cases, he said, “Enron failed to describe at all the nature of the SPEs that it sponsored, the level of Enron’s ongoing commitments related to those SPEs, and the extent to which these SPEs were crucial to Enron’s financial results and future prospects.” Batson noted up to $5 billion that may be recoverable for creditors through legal challenges, including claims were found against the SPEs, former Chairman Kenneth Lay, and certain law firms that advised Enron before its December 2001 bankruptcy.

The examiner also criticized the pre-pay transactions set up by Enron’s bankers, including JP Morgan Chase and Citigroup. “Collectively,” said Batson, the transactions “may have been Enron’s single largest source of cash during the four-year period” preceding its bankruptcy filing.

Batson said that his examination to date has concluded three things about the SPEs:

“Giving the ongoing criminal investigations of both Fastow and Kopper and the fact that the examiner has been unable to interview them and other key Enron insiders…the examiner’s investigation of the related party transactions is continuing,” said Batson.

In a separate filing Wednesday, Batson also requested an order that would compel seven employees of Credit Suisse First Boston (CSFB)to provide sworn testimony concerning work the bank conducted for Enron.

CSFB in response replied that it was only part of the continuing process to collect evidence from everyone involved in Enron’s financing. CSFB in a statement wrote, “The examiner has informed us that he intends to take testimony from eight investment banks including CSFB and we have and will continue to cooperate with his investigation consistent with the court’s order.”

To review the examiner’s findings, visit the e-law web site at https://bank.elaw.com/. The report may be downloaded at no charge.

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