Project28 messages

LJM Raptors SPE Accounting

Jun 19, 2000 – Jan 31, 2002

Updated Jun 5, 2026

EXECUTIVE SUMMARY

Create a concise project brief from attached messages and citations.

Between June 2000 and early 2002, Enron created and then unwound a set of special-purpose entities — Raptor I through IV — designed to hedge the company's investments through equity swaps with LJM partnerships managed by CFO Andrew Fastow. The Raptor structures allowed Enron to defer losses on assets like Catalytica and NewPower, but by December 2000 Raptor I's credit capacity had turned negative . In early 2001 the vehicles were restructured with new collars to extend coverage down to $20/share , yet continuing asset write-downs eroded that protection . By October 2001, as Enron restated earnings, the company reversed $710 million in Raptor-related book losses . Fastow was ousted as CFO later that month , and the partnerships were central to the profit restatements that ultimately drove Enron into bankruptcy .

Phase I: Creation of the Raptor Vehicles

Jun–Oct 2000

Enron structured four special-purpose vehicles — Raptor I through IV — to hedge assets via equity swaps with LJM partnerships. David Delainey outlined $500M and $608M tranches for Raptor I and II . Mary Cook drafted swap forms, coordinated confirmations, and managed legal reviews with Kirkland & Ellis . Kaye Ellis circulated a revised Raptor 2 hedge in October .

Phase II: Credit Deterioration and Restructuring

Nov 2000–Aug 2001

By December 2000, Raptor I's credit capacity had fallen to negative $6.2 million, driven by Catalytica's decline . The vehicles were restructured in March 2001 with new collars meant to protect Enron down to $20/share . However, asset write-downs within the vehicles — especially NewPower — continued to erode capacity . Meanwhile, LJM2 was reclassified as no longer a related party for disclosure purposes .

Phase III: Unwind and Collapse

Sep–Nov 2001

In late September 2001, Enron prepared a statement to the Wall Street Journal addressing the LJM partnerships . By October 9, the company instructed accounting staff to reverse $710 million in book losses across the four Raptor entities (Harrier, Grizzly, Pronghorn, Roadrunner) as part of the unwind . Fastow was replaced as CFO on October 25 amid the SEC probe . In November, Enron slashed reported profits by 20% since 1997, citing the partnership dealings .

CURRENT STATUS & UNDERSTANDING

By early 2002, the Raptor SPE program had been fully unwound and was at the center of multiple investigations. News reports in February 2002 identified a 1997 meeting — attended by Lay, Skilling, and Fastow — where executives discussed the novel partnership structures that later inflated earnings . Congressional committees were actively investigating Enron's refusal to supply requested partnership documents , and the company had restated four years of profits downward by 20% . The LJM statement drafted in September 2001 and the $710 million loss reversal remained key reference points for investigators examining whether the Raptor swaps were structured to conceal rather than hedge risk. Post-bankruptcy, the internal controls presentation from December 2001 indicates that audit teams were still working to document what had occurred.

FRICTION POINTS & DELAYS

warning

Raptor I's credit capacity collapsed from positive $94 million in November 2000 to negative $6.2 million by December, driven by Catalytica's decline — forcing an emergency restructuring of the vehicles .

warning

Enron had told Skilling the Raptor structure was 'safe' down to $20/share, but this assumption did not account for asset write-downs inside the vehicles themselves — a miscalculation that became the central issue when NewPower and other assets deteriorated .

warning

The October 2001 unwind required reversing $710 million in book losses across the four Raptor entities, revealing that the losses had never been properly recorded in SAP and creating significant tax-accounting complications .

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1Creation of the Raptor Vehicles

Jun–Oct 2000

Enron structured four special-purpose vehicles — Raptor I through IV — to hedge assets via equity swaps with LJM partnerships. David Delainey outlined $500M and $608M tranches for Raptor I and II [msg:88427]. Mary Cook drafted swap forms, coordinated confirmations, and managed legal reviews with Kirkland & Ellis [msg:414165][msg:412947]. Kaye Ellis circulated a revised Raptor 2 hedge in October [msg:419803].

InboundEmail #450323

Jun 19, 2000

raptor II

From: Carol Clair

ca***@enron.com

The new docs looked fine with me. Carol St. Clair EB 3892 713-853-3989 (Phone) 713-646-3393 (Fax) ca***@enron.com

InboundEmail #88427

Jul 30, 2000

Raptor et al

From: David Delainey

da***@enron.com

have an expected portfolio of $500M (gross) or $408M (net-ENA's share) to be placed into Raptor on September 1. We have a second tranche of $608M (gross) or $396M (net ENA's share) to be placed into Raptor 2 on December...

InboundEmail #419887

Aug 29, 2000

Re: Raptor III, and IV and . . .

From: Mary Cook

ma***@enron.com

structured finance transactions which include swaps. In connection with such considerations, please see the last note on the attached email from Sefton. I will cover Raptor 3 for now. Mary ----- Forwarded by Mary Cook/HO...

InboundEmail #416324

Aug 31, 2000

Raptor: Notice Pursuant to Equity Swap and other items

From: Mary Cook

ma***@enron.com

address should be Talon c/o LJM2@ Co-Investment, L.P. rather than just to Talon. 2. Vargas met with me last night. I am printing out and copying proposal sheets and valuations and stock ownership (the latter of which the...

InboundEmail #412947

Sep 5, 2000

Raptor Confirms: Publics

From: Mary Cook

ma***@enron.com

TO: ANDREA REED STUART ZISMAN JULIA MURRAY JULIA CHIN FROM: MARY COOK CC: MARK TAYLOR SARA SHACKLETON SCOTT SEFTON SEPTEMBER 5, 2000 RE: RAPTOR CONFIRMS ATTACHED ARE THE PUBLIC CONFIRMS, EXCEPT ACTIVE POWER WHICH WILL BE...

InboundEmail #418704

Sep 6, 2000

Raptor Confirms: Publics

From: Andrea Reed

an***@enron.com

this to Julia Chin this morning. Thanks, avr ---------------------- Forwarded by Andrea V Reed/HOU/ECT on 09/07/2000 08:04 AM --------------------------- MARY COOK 09/06/2000 06:05 PM To: Andrea V Reed/HOU/ECT@ECT, Stuar...

InboundEmail #417259

Sep 16, 2000

Juniper Partnership Interest Swap--Raptor

From: Mary Cook

ma***@enron.com

LP. Andrea has agreed that as to partnership interests, the mutual termination right is only for the entire interest and we do not need to draft in partial termination rights so the Notice, if given, will always be for t...

InboundEmail #414165

Sep 21, 2000

Forms of Enron Raptor Swaps: Review/Comment

From: Mary Cook

ma***@enron.com

balance sheet swap project. I have tried to clean them, and have also incorporated comments received thus far from Kirkland & Ellis, firm for Talon. Please review these forms and provide any further comments or suggestio...

InboundEmail #419803

Oct 4, 2000

Raptor 2 hedge

From: Kaye Ellis

ka***@enron.com

Attached is the revised Raptor 2 hedge.

2Credit Deterioration and Restructuring

Nov 2000–Aug 2001

By December 2000, Raptor I's credit capacity had fallen to negative $6.2 million, driven by Catalytica's decline [msg:498614]. The vehicles were restructured in March 2001 with new collars meant to protect Enron down to $20/share [msg:225437]. However, asset write-downs within the vehicles — especially NewPower — continued to erode capacity [msg:39139]. Meanwhile, LJM2 was reclassified as no longer a related party for disclosure purposes [msg:443454].

InboundEmail #501100

Nov 21, 2000

Raptor Position Reports for 11/20/00

From: Ben Glisan

be***@enron.com

Attached are the daily position reports for the various Raptor vehicles. Ben ----- Forwarded by Ben F Glisan/HOU/ECT on 11/22/2000 06:58 AM ----- Gordon McKillop@ENRON 11/21/2000 08:05 PM To: Ben F Glisan/HOU/ECT@ECT, An...

InboundEmail #498614

Dec 18, 2000

Raptor Position Reports for 12-18-00

From: Gordon Mckillop

go***@enron.com

to Catalytica which is now a publicly traded stock. Raptor 3 also has a negative credit capacity.

InboundEmail #203764

Jan 2, 2001

Raptor Position Reports for 12/28/00

From: Ron Baker

ro***@enron.com

Raptor vehicles which include spreadsheets detailing what is hedged within each vehicle. One thing that I forgot to mention in our meeting yesterday is that there is considerable indecision as to whether or not Raptor 4...

InboundEmail #203479

Feb 1, 2001

Raptor Position Reports for 1/29/01

From: Stinson Gibner

st***@enron.com

structures. The summary sheet summarizes the assets and liabilities in all four. --Stinson ---------------------- Forwarded by Stinson Gibner/HOU/ECT on 02/02/2001 04:10 PM --------------------------- Rakesh Bharati@ENRO...

InboundEmail #417098

Mar 20, 2001

Re: mariner

From: Gordon Mckillop

go***@enron.com

structure. The current thinking is that the swap will be at the money and look like the other private swaps in Raptor I and II. The amount, termination date and Raptor vehicle are still being discussed. The termination d...

InboundEmail #445128

May 1, 2001

Project Aura; draft disclosures re LJM2

From: Lance Schuler Legal

la***@enron.com

At the request of Jim Derrick, attached are the latest draft disclosures for a 10-Q Quarterly Report and for the 2002 Proxy Statement in connection with LJM2's proposed acquisition of Enron Renewable Energy Corp. Please...

InboundEmail #268004

May 2, 2001

Re: Project Aura; draft disclosures re LJM2

From: Rosalee Fleming

ro***@enron.com

Rosie From: Lance Schuler-Legal@ECT on 05/01/2001 05:09 PM To: Kenneth Lay/Corp/Enron@ENRON, Jeff Skilling/Corp/Enron@ENRON cc: James Derrick/Enron@EnronXGate Subject: Project Aura; draft disclosures re LJM2 At the reque...

InboundEmail #443454

Aug 1, 2001

Private Equity Transactions and LJM2 (From A Fastow)

From: Bridget Maronge

br***@enron.com

Please note that LJM2 Co-Investment, L.P. ("LJM2") is no longer a "related party" for purposes of disclosure in Enron's proxy and financial statements. Transactions may occur with LJM2 as with any other unrelated third p...

InboundEmail #349817

Aug 1, 2001

FW: Private Equity Transactions and LJM2 (From A Fastow)

From: Sara Davidson

sa***@enron.com

Original Message----- From: Maronge, Bridget Sent: Thursday, August 02, 2001 9:39 AM To: Davidson, Sara Cc: Fastow, Andrew Subject: FW: Private Equity Transactions and LJM2 (From A Fastow) Sara, per our conversation, ple...

InboundEmail #225437

Aug 26, 2001

FW: Meeting with Gordon on Raptor

From: J Kaminski

j.***@enron.com

From: Yuan, Ding Sent: Friday, August 24, 2001 1:41 PM To: Kaminski, Vince J Subject: FW: Meeting with Gordon on Raptor Vince: Cassandra asked me to forward this note to you, hope it is of some help. Ding. -----Original...

InboundEmail #39139

Aug 27, 2001

RE: NewPower

From: David Port

da***@enron.com

tks. we are revisiting raptor credit capacity - one of the things we told skilling was that raptor was "safe" for ENE down to $20, but this was in the absence of asset write downs within the vehicle itself - which is rea...

3Unwind and Collapse

Sep–Nov 2001

In late September 2001, Enron prepared a statement to the Wall Street Journal addressing the LJM partnerships [msg:93577]. By October 9, the company instructed accounting staff to reverse $710 million in book losses across the four Raptor entities (Harrier, Grizzly, Pronghorn, Roadrunner) as part of the unwind [msg:113412][msg:113939]. Fastow was replaced as CFO on October 25 amid the SEC probe [msg:5573]. In November, Enron slashed reported profits by 20% since 1997, citing the partnership dealings [msg:260221].

InboundEmail #93577

Sep 26, 2001

FW: LJM Statement

From: James Derrick

ja***@enron.com

Original Message----- From: Palmer, Mark A. (PR) Sent: Thursday, September 27, 2001 12:35 PM To: Lay, Kenneth; Whalley, Greg; Kean, Steven J.; Fastow, Andrew; Koenig, Mark; Derrick Jr., James; Rieker, Paula Subject: LJM...

InboundEmail #113412

Oct 8, 2001

FW: Raptor unwind tax accounting

From: John Swafford

jo***@enron.com

Facundo: Essie and I will confirm with Donette tomorrow, but for the time being, plan on reversing the $710 million book loss on the entities listed below (if you determine that they were in fact booked) and include Sche...

InboundEmail #113939

Oct 9, 2001

RE: Raptor unwind tax accounting

From: Mary Fischer

ma***@enron.com

Original Message----- From: Swafford, John Sent: Tuesday, October 09, 2001 6:23 PM To: Caminos, Facundo Cc: Fischer, Mary; Locklear, Essie Subject: FW: Raptor unwind tax accounting Facundo: Essie and I will confirm with...

InboundEmail #5573

Oct 24, 2001

Enron Mentions

From:

The Wall Street Journal, 10/25/01 Enron Ousts Finance Chief As S.E.C. Looks at Dealings The New York Times, 10/25/01 Pressured Enron Ousts CFO The Washington Post, 10/25/01 Enron replaces CFO to reassure investors Housto...

InboundEmail #260221

Nov 8, 2001

Enron Mentions

From:

The Wall Street Journal, 11/09/01 Does Enron Trust Its New Numbers? It Doesn't Act Like It The New York Times, 11/09/01 Surest Steps, Not the Swiftest, Are Propelling Dynegy Past Enron The New York Times, 11/09/01 Enron...

InboundEmail #38411

Dec 12, 2001

Internal Controls presentation

From: Andrew Parsons

an***@enron.com

Attached is the draft presentation of the internal controls component of the audit. We are only planning on including the first 4 of 8 pages. The last 4 pages were built anticipating Andersen being involved and are inclu...

InboundEmail #322948

Jan 1, 2002

Enron Mentions -- 01/02/02-12/31/01

From: Sarah Palmer

sa***@enron.com

The Wall Street Journal, 01/02/2002 Humbled Enron tries to save core business --- Accounting practices thrust into spotlight Associated Press, 01/02/2002 Shell Game; How Enron concealed losses, inflated earnings -- and h...

InboundEmail #323224

Jan 31, 2002

Enron Mentions -- 02/01/02

From: Sarah Palmer

sa***@enron.com

The Wall Street Journal, 02/01/2002 Ex-Enron CEO Agrees to Testify Before Panel Energy: Appearance by Skilling called critical by chairman of subcommittee looking into firm's downfall. Los Angeles Times, 02/01/2002 At La...