--- title: "Enron, Chewco and JEDI: outside equity that remained protected" language: en canonical: https://dossiertwist.com/dossiers/enron/chewco-jedi/ as_of: 2026-10-08 keywords: ["Enron","LJM","Chewco","Raptor","bankruptcy","corporate governance","structured finance","legal outcomes"] --- # Enron, Chewco and JEDI: outside equity that remained protected **Question.** Why did the Chewco financing require a restatement? **Answer.** Chewco replaced CalPERS in JEDI using predominantly borrowed funds. Cash collateral supplied by JEDI protected part of the apparent outside equity, undermining the accounting basis for leaving both structures unconsolidated. ## Replacing CalPERS - Analysis: JEDI began as a jointly controlled partnership of Enron and CalPERS. When CalPERS exited for $383 million in 1997, Chewco became the replacement limited partner. Kopper controlled its original structure. The later arrangement placed SONR #1 above Chewco as general partner, Big River as limited partner and Little River above Big River; interests in the latter companies were transferred to Dodson. The report could not resolve every implication of those governance changes for accounting control. [s-d117] - Attributed: Enron and CalPERS established JEDI in 1993 with $250 million each, contributed as Enron stock and cash respectively. Enron was general partner and CalPERS limited partner; joint control supported non-consolidation. Chewco was formed in 1997 to replace CalPERS, whose interest was redeemed for $383 million. [s-d117] - Qualification: The committee describes successive investments and a later redemption; these are not contemporaneous capital commitments to be added together. - Attributed: Kopper initially controlled Chewco through intermediary entities. In December 1997 Chewco became a limited partnership with SONR #1 L.P. as general partner, Big River Funding LLC as limited partner and Little River Funding LLC above Big River. Kopper transferred his interests in Big River and Little River to William Dodson. [s-d117] - Qualification: The report found uncertainty about whether the changed governance overcame the accounting presumption of control. Kopper remained manager of the general-partner structure and held more than 95% of SONR’s limited-partner interest; Dodson held the remainder. - Analysis: The written board presentation described an unaffiliated vehicle. The inquiry found no recorded disclosure of Kopper’s personal interest. Lay denied having been asked to approve it; Skilling said he had approved Kopper’s role and believed he had discussed it with the board. The committee distinguished these accounts from the missing written approval and from the code’s requirement for chairman-and-CEO consent. [s-d117] - Attributed: The November 1997 board presentation described Chewco as unaffiliated. The Powers inquiry found no written disclosure or approval of Kopper’s personal participation. Lay said he had not been asked to approve it; Skilling said he approved Kopper’s management role on Fastow’s recommendation and believed he had discussed it with the board. [s-d117] - Qualification: The committee distinguished these recollections from the written record and said Skilling’s approval did not satisfy the code’s requirement for chairman-and-CEO consent. ## Why the capital did not meet the stated test - Analysis: The permanent structure used a $240 million Barclays loan guaranteed by Enron, a $132 million JEDI advance and about $11.5 million presented as equity. Almost all the apparent equity was itself financed by Barclays through Big River and Little River. JEDI then supplied $6.58 million of cash reserves pledged to support that financing. On the committee’s analysis, the capital was protected rather than genuinely exposed to loss, defeating the historical non-consolidation condition. [s-d117] - Attributed: The Powers report explains that avoiding consolidation required substantive outside capital genuinely at risk and independent control, rather than merely a separate legal entity. It describes 3% as a minimum historical capital benchmark, with adequacy depending on the transaction. [s-d117] - Qualification: This describes the historical accounting framework applied in the report. A nominal 3% investment or a legal ownership percentage does not by itself establish economic independence or correct accounting. - Attributed: Chewco’s permanent funding comprised a $240 million Barclays loan guaranteed by Enron, a $132 million JEDI advance and about $11.5 million presented as equity. Only $125,000 came from Kopper and Dodson; the remaining approximately $11.4 million was financed through Barclays loans to Big River and Little River. [s-d117] - Qualification: The figures are the report’s rounded funding description. Debt financed through member entities is not the same as independent loss-bearing capital. - Attributed: Barclays required $6.58 million cash collateral for the loans supporting Chewco’s apparent equity. JEDI supplied the reserve-account cash. The committee concluded that this protected funding was not genuinely at risk and that Chewco and JEDI should have been consolidated from November 1997. [s-d117] - Qualification: The report could not establish whether the original failure arose from negligence, poor judgment or self-interest. It could not confirm or disprove Andersen’s account of what its personnel knew. - Response: Andersen’s CEO said the firm had known the bank supplied the capital but had not known of the reserve-account collateral. Glisan later said he had not known of it at closing. - Outcome: Enron and Andersen concluded in November 2001 that consolidation was required; Enron announced a restatement. - Analysis: The report did not establish why the defect had been missed. Andersen said it had not known of the collateral; Glisan likewise said he was unaware at closing. The committee could not confirm or disprove the auditor’s account. Once the collateral documents were reviewed in autumn 2001, Enron and Andersen agreed that Chewco and JEDI should have been consolidated from November 1997, prompting a restatement. [s-d117] ## Fees, revenue and the later buyout - Analysis: Separate accounting questions concerned fees and Enron’s own shares. The committee questioned management and restructuring fees paid through Kopper’s structure, accelerated recognition of guarantee and management payments, and inconsistent recognition of gains and losses on Enron stock held by JEDI. The payment streams had different recipients and purposes; combining them into one undifferentiated loss would obscure the transactions. [s-d117] - Attributed: The committee questioned approximately $2 million in Chewco-related fees to Kopper’s structure: $1.6 million management fees and a $400,000 restructuring payment. It also criticised Enron’s immediate recognition of a $10 million guarantee fee and questioned $25.7 million income from capitalising future JEDI management payments. [s-d117] - Qualification: These are committee assessments of different payment streams, not a single total of stolen funds. The annual management fees were largely funded from the JEDI revolving facility. - Attributed: The report records $126 million of Enron-stock appreciation recognised through JEDI in the first quarter of 2000, while Enron did not recognise its roughly $90 million share of the subsequent first-quarter 2001 decline. The committee could not reconcile the treatments. [s-d117] - Qualification: These are the report’s findings on specific periods, not an estimate of all own-share income over JEDI’s life. - Response: Enron accountants said Andersen advised against recognising the decline because Enron was no longer recognising increases. The committee could not determine the full historic amount of own-share gains. - Analysis: The March 2001 buyout had a $35 million contractual price, but offsets and debt repayment left $3 million retained at closing, in addition to $7.5 million previously received. A $15 million unsecured loan remained linked to Osprey certificates. McMahon described proposing a much lower return; Fastow disputed involvement, and Skilling denied approving the amount. The committee could not identify the final decision-maker from direct evidence. [s-d117] - Attributed: Enron repurchased Chewco’s JEDI interest in March 2001 for a contractual $35 million. After retained amounts and repayment of JEDI advances, the closing cash retained by Chewco was $3 million, adding to $7.5 million net cash previously received. A $15 million unsecured, non-recourse loan remained linked to Osprey certificates. [s-d117] - Qualification: Gross purchase price, debt repayment and investors’ cash return are different measures. McMahon described advocating a much lower return; the committee found no direct evidence identifying the final decision-maker. - Response: Fastow denied participating in the negotiations; other interviews and a memorandum contradicted that account. Skilling denied involvement in or approval of the buyout amount. - Analysis: An additional $2.6 million tax-indemnity payment in September raised a distinct concern because counsel said the agreement did not cover the buyout. Counsel attributed approval to a message from Fastow invoking Skilling. Skilling said he did not recall that discussion, and Fastow did not answer the committee’s questions. The contested attribution remains alongside the payment, rather than being converted into an unqualified finding against each person. [s-d117] - Attributed: The committee questioned an additional $2.6 million tax-indemnity payment to Chewco in September 2001 after lawyers had advised that the agreement did not cover the buyout. Counsel said Fastow relayed Skilling’s approval. [s-d117] - Qualification: The report presents attributed evidence and could not interview Fastow on the point. - Response: Skilling said he did not recall communicating with Fastow about the payment. Fastow declined to answer the committee’s questions. ## Sources - [s-d117] Company statement source · s-d117