"Many of the most significant transactions apparently were designed to accomplish favorable financial statement results, not to achieve bona fide economic objectives or to transfer risk," the report said. "They allowed Enron to conceal from the market very large losses resulting from Enron's merchant investments by creating an appearance that these investments were hedged."
"They have basically agreed that Fastow had gone beyond his authority," said Robert McCullough, a consultant and adjunct professor at Portland State University who is helping draft questions for the Enron hearings. "They've thrown him to the wolves."
Fastow set up dozens of private partnerships to reshuffle Enron assets. Kopper worked with Fastow at Enron to help market some of the partnerships to investors and left the company to run LJM2, according to company filings and court records.
Fastow formed LJM2 in 1999, and the partnership acquired energy and telecommunications assets from Enron, including an 30,000km fiber-optic network it bought in June 2000 in a transaction that resulted in a US$67 million profit for Enron.
Jeffrey McMahon, then Enron's treasurer, said he told then-Chief Executive Officer Jeffrey Skilling in March 2000 "that Fastow was pressuring Enron employees who were negotiating with LJM," according to the report.
McMahon told Skilling that Fastow was wearing "2 hats" and that "upside comp is so great creates a conflict I am right in the middle of. I find myself negotiating with Andy [Fastow] on Enron matters and am pressured to do a deal that I do not believe is in the best interests of the shareholders. Bonuses do get affected," according to McMahon's notes of the conversation.
McMahon's complaint, almost two years ago, was the earliest known alert about the conflicts of interest involved in the partnership transactions. Based on McMahon's version of the talk, Skilling took no action. The report said McMahon, who is now Enron's president, didn't approach Lay or the board.
In August 2001, Enron Vice President Sherron Watkins sent an anonymous letter to Lay raising questions about the partnership and saying "I am incredibly nervous that we will implode in a wave of accounting scandals."
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