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10/19/01 WSJ C1
10/19/01 Wall St. J. CI
2001 WL-WSJ 2879138

  The Wall Street Journal
Copyright (c) 2001, Dow Jones & Company, Inc.

Friday, October 19, 2001

Enron CFO's Partnership Had Millions in Profit
By Rebecca Smith and John R. Emshwiller
Staff Reporters of The Wall Street Journal

A limited partnership organized by Enron Corp.'s
chief financial officer, Andrew S. Fastow, realized
millions of dollars in profits in transactions it did with
Enron, according to an internal partnership document.

The partnership, in some instances, benefited from
renegotiating the terms of existing deals with the
Houston energy company in ways that improved the
partnership's financial positions or reduced its risk of
losses.

  Mr. Fastow, and possibly a handful of partnership
associates, realized more than $7 million last year in
management fees and about $4 million in capital
increases on an investment of nearly $3 million in the
partnership, which was set up in December 1999
principally to do business with Enron.

The profits from the deals were disclosed in a
financial report to investors in the partnership, LJM2
Co-Investment LP, that was signed by Mr. Fastow as
the general partner and dated April 30. In one case, the
report indicates the partnership was able to improve
profits by terminating a transaction early.

The LJM2 arrangement has become controversial for
Enron, as shareholders and analysts have raised
questions about whether it posed a conflict by putting
the company's chief financial officer, who has a
fiduciary duty to Enron shareholders, in a position of
reaping financial rewards for representing LJM2
investors in business deals with Enron. Investors in
LJM2 include Wachovia Corp., General Electric Co.'s
General Electric Capital Corp. and Credit Suisse
Group's Credit Suisse First Boston.

Attention has focused on Mr. Fastow's partnership
activities at a tumultuous time for Enron, which over
the past decade grew enormously by becoming the
nation's biggest energy-trading company.

This year, though, it has been hit by a string of
troubles, from soured business initiatives to executive
departures. On Tuesday, Enron announced a $618

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million third-quarter loss, because of a $1.01 billion
write-off on investments in broadband
telecommunications, retail energy services and Azurix
Corp., a water company. A small chunk of that write-
off, about $35 million, was attributed to ending certain
LJM2-related transactions. That termination also
produced a $1.2 billion reduction in Enron shareholder
equity as the company decided to repurchase 55
million shares that had been part of LJM2 deals.

At 4 p.m. in New York Stock Exchange composite
trading, Enron was down 9.9%, or $3.20, to $29 a
share. Within the past year, the stock had topped $80 a
share.

Enron officials didn't have any comment about the
LJM2 partnership document. Enron has consistently
said its dealings with LJM2 have been proper. They
said the LJM2 deals, like ones done with other parties,
were aimed at helping hedge against fluctuating market
values of its assets and adding sources of capital.

Mr. Fastow has declined several requests for an
interview about LJM2. In late July, he formally severed
his ties with LJM2, as a result of what Enron officials
said was growing unease by Wall Street analysts and
major shareholders. Mr. Fastow has been finance chief
of Enron since 1997 and has been with the firm I1
years, which included extensive work setting up and
managing company investments.

Michael Kopper, a former Enron executive who an
Enron spokesman said is now helping to operate LJM2,
declined to comment. He also wouldn't describe his
relation to LJM2.

In his April 30 report, Mr. Fastow said the
partnership, which raised $394 million, had invested in
several Enron-related deals involving power plants and
other assets as well as company stock. The document
said LJM2 sought a 29% internal rate of return. That
was down from a 48% targeted rate of return at the end
of 2000, which the document said was due in part to a
decline in the value of LJM2's investment in New
Power Co., an Enron-related energy retailer. In some
transactions, LJM2 did much better than the 29%
target, though this sometimes involved renegotiating
individual deals.

In September 2000, the partnership invested $30
million in "Raptor III," which involved writing put
options committing LJM2 to buy Enron stock at a set
price for six months. Four months into this deal, LJM2

Copr. cİ West 2002 No Claim to Orig. U.S. Govt. Works

EXH023-00201

GOVERNMENT
EXHIBIT
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  Crim. No. H-04-25 (S-2)


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10/19/01 WSJ C1

approached Enron to settle the investment early,
"causing LJM2 to receive its $30 million capital
invested plus $10.5 million in profit," the report said.
The renegotiation was before a decline in Enron's stock
price, which could have forced LJM2 to buy Enron
shares at a loss of as much as $8 each, the document
indicated.

--- INDEX REFERENCES ----

NEWS SUBJECT: English language content
(ENGL)

MARKET SECTOR: Utilities (UTI)

INDUSTRY: Gas Utilities; Islamic Index (GAS
XISL)

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PRODUCT: Oil & Gas; Utilities; Embargoed
Journal Stories; Wall Street Journal Graphics (DGA
DUT EMB PIC)

REGION: North America; Texas; United States;
United States; Southern U.S.; North American
Countries (NME TX US USA USS NAMZ)

LAYOUT CODES: Third Front; Business and
Finance Column Stories (TFR TPT)

Word Count: 722

10/19/01 WSJ C1

END OF DOCUMENT

Copr. C West 2002 No Claim to Orig. U.S. Govt. Works

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