--- title: "Enron and LJM: asset sales that came back" language: en canonical: https://dossiertwist.com/dossiers/enron/asset-sales/ as_of: 2026-10-08 keywords: ["Enron","LJM","Chewco","Raptor","bankruptcy","corporate governance","structured finance","legal outcomes"] --- # Enron and LJM: asset sales that came back **Question.** Did LJM take independent asset risk from Enron? **Answer.** Several transactions moved assets off Enron’s balance sheet near reporting deadlines, followed by repurchases that protected LJM’s return. The evidence includes disputed explanations and differences between projects. ## A recurring pattern with different explanations - Analysis: The Powers inquiry did not treat every LJM purchase as identical. It identified five repurchases among seven assets sold in late 1999 and profits for LJM in every transaction it examined. It also acknowledged that some repurchases had plausible innocent explanations. Fastow’s presentation claimed $229 million of resulting earnings, but the committee could not verify that calculation. The useful test is therefore the actual risk and commitments in each transaction. [s-d117] - Attributed: The committee examined nearly twenty other LJM transactions. It found that Enron repurchased five of seven assets sold in the last two quarters of 1999 and that LJM made a profit on every transaction examined. Fastow’s presentation attributed $229 million of second-half 1999 earnings to the transactions, a calculation the inquiry could not confirm. [s-d117] - Qualification: The report identified evidence of undocumented protection against loss in some transactions, but also acknowledged plausible innocent explanations for some repurchases. Its unverified $229 million presentation figure is not adopted as a measured loss. - Analysis: Cuiabá illustrates why an unwritten promise would matter. Selling 13% of the project company to LJM1 allowed Enron to treat the project as outside its control and recognise gas-contract income. The later $14.4 million repurchase delivered LJM1 its maximum return despite project difficulties. One employee described a prior understanding that Enron would buy it back. Others pointed to board-quorum problems or misrepresentations in the original sale. The inquiry could not resolve those accounts; a proven make-whole undertaking would defeat the claimed independent risk. [s-d117] - Attributed: In September 1999 Enron sold LJM1 a 13% interest in the Cuiabá project company, Empresa Productora de Energia, for approximately $11.3 million. Enron used the resulting loss of control to recognise $65 million of mark-to-market income from a gas-supply contract in the second half of 1999. It repurchased LJM1’s interest for $14.4 million in August 2001 despite deterioration in the project. [s-d117] - Qualification: The price covered the project stake and certain preference shares. The committee could not resolve competing accounts of a prior promise to protect LJM1; such a promise would undermine the claimed risk transfer. - Response: The buy-back negotiator cited the need to recover a board seat and end quorum problems. Skilling cited misrepresentations to LJM1 and said a buy-back would have been justified for an outside party too. Another employee said Fastow had described an understanding that Enron would repurchase the investment if no buyer emerged. ## Loans and temporary project holders - Analysis: The loan pool sold by Enron North America involved approximately $324 million of notes and equity. LJM2 took difficult-to-sell lower-ranking securities. A nearby loan from an unidentified Whitewing affiliate raised a question about whether LJM2 supplied independent funding, but the report could not establish that use of proceeds. The later record is clearer: Enron supplied a put option and ultimately repurchased notes and equity after the loans performed badly. The initial sale itself generated no accounting income because the loans were carried at fair value. [s-d117] - Attributed: Enron North America placed approximately $324 million of loan-backed notes and equity in December 1999. LJM2 bought $32.5 million of the lowest-ranking notes and equity; a Whitewing affiliate bought other low-ranking notes. Another Whitewing affiliate lent LJM2 $38.5 million shortly before its purchase. [s-d117] - Qualification: The committee could not determine that the Whitewing-affiliate loan funded LJM2’s purchase, although it considered the timing and amount suggestive. The original sale did not create income because the loans were carried at fair value. The lender is not identified as Whitewing Associates itself. - Outcome: After loans deteriorated, Enron supplied a $113 million put option in September 2000 and ultimately repurchased the outstanding notes at par plus interest in May and July 2001, and LJM2’s equity at cost. Part of the put exposure was placed into Raptor I with an earlier effective hedge date. - Analysis: At Nowa Sarzyna, a lender covenant made LJM2’s role temporary. A waiver of Enron’s minimum holding expired in March 2000; a plant malfunction and failure to find another buyer preceded the repurchase. MEGS also returned to Enron within months. McMahon’s recorded objection to the MEGS repurchase concerned its unproven economics, not a finding that every component of the original sale was fictitious. [s-d117] - Attributed: Enron sold LJM2 a 75% interest in the company holding the Nowa Sarzyna power plant in Poland in December 1999. LJM2 supplied $30 million in loan and equity funding; Enron recorded about $16 million of gain. Enron and Whitewing repurchased the interest and repaid the loan for $31.9 million in March 2000. [s-d117] - Qualification: This was a temporary holding arrangement: a financing covenant required Enron to retain at least 47.5% until completion, and its waiver expired at the end of March. The committee described a plant malfunction and the inability to find a replacement buyer. - Attributed: LJM2 acquired a 90% interest and a note in MEGS LLC, a Gulf of Mexico gas-gathering business, at the end of 1999. Enron repurchased the interests in March 2000 at a price delivering LJM2 its maximum permitted return. The committee records a later impairment after declining gas-well performance. [s-d117] - Qualification: The purchase combined a $25.6 million payment for a $23.2 million note with $743,000 of equity. These are not two measures of the same principal. McMahon initially declined to approve the repurchase because its economic rationale had not been demonstrated. ## An intermediary without lasting exposure - Analysis: The Yosemite certificate transaction placed LJM2 briefly between Enron and Condor. The documents used December dates, while the committee identified an actual February circular transfer funded by Condor itself. That supported a $100,000 fee without lasting LJM2 exposure. Fastow’s intervention in the fee negotiation shows the conflict between his Enron and LJM roles; McMahon’s response and the lower final fee are also part of the record. This small transfer of certificates must not be confused with the much larger Yosemite financing programmes. [s-d117] - Attributed: The committee found that LJM2 briefly intermediated Enron’s sale of Yosemite certificates to Whitewing affiliate Condor. Documents dated the two transfers 29 and 30 December 1999, but the actual circular cash-and-certificate transfers appeared to occur on 28 February 2000. LJM2 received $100,000 plus expenses. [s-d117] - Qualification: Enron sought to reduce a 50% certificate holding to 10% for disclosure purposes. The report could not explain why Condor could not buy directly or how a transfer onward before year-end met that purpose. This certificate transaction is distinct from all Yosemite financing raised over time. The report’s Watkins section names Condor Trust as a Whitewing Associates subsidiary; that fuller description is used for the Condor affiliate identified in this same report, not an independently verified present-day registration. - Response: McMahon said he challenged Fastow after Fastow pressed an employee negotiating LJM2’s fee. The original lower fee prevailed, rather than the $1 million or more initially sought by LJM2. ## Sources - [s-d117] Company statement source · s-d117