Enron
LJM, which stands for Lea, Jeffrey, Michael, the names of Andrew Fastow 's wife and children, was a company created in 1998 by Enron 's CFO, Andrew Fastow, to buy Enron 's poorly performing stocks and stakes and bolster Enron 's financial statements. Fastow proposed in October 1999 to Enron 's finance Board the creation of LJM2 Co-Investment L.P. Fastow would act as general director of a much larger private equity fund that would be funded with $200 million of institutional funds. The question of Fastow’s dual role as Enron 's CFO and LJM2 's general director was not viewed as a conflict of interest was easily laid aside.
LJM2, which is a partnership created to buy assets owned by the Enron Corporation to help move debt off of the balance sheet and transfer risk for their other business ventures. These Special Purpose Entities (SPEs) was established to keep Enron 's credit rating stay high, which was very important in their fields of business. A special purpose entity is a trust, corporation, limited partnership, or other legal vehicle authorized to carry out specific activities as enumerated in its establishing legal document. LJM2 entered into 26 deals with Enron to help the company move debt and assets off its books. The SPEs provides its sponsor with financing and liquidity while offering creditors protection against the sponsor’s bankruptcy. Anyway, the executives believed that if Enron 's long-term stock values could remain high, they would have ways to use the company 's stock to hedge its investments in these other entities. They did this through a very complex arrangement of SPEs they called the Raptors, a group of entities designed to both buffer Enron’s earnings from mark-to-market write-downs and to pay millions of dollars to a handful of Enron executives and their friends The Raptors were established to cover their losses if the stocks in their start-up businesses fell. It was very clever, but wrong. In order for the Raptor to come through, the
LJM2, which is a partnership created to buy assets owned by the Enron Corporation to help move debt off of the balance sheet and transfer risk for their other business ventures. These Special Purpose Entities (SPEs) was established to keep Enron 's credit rating stay high, which was very important in their fields of business. A special purpose entity is a trust, corporation, limited partnership, or other legal vehicle authorized to carry out specific activities as enumerated in its establishing legal document. LJM2 entered into 26 deals with Enron to help the company move debt and assets off its books. The SPEs provides its sponsor with financing and liquidity while offering creditors protection against the sponsor’s bankruptcy. Anyway, the executives believed that if Enron 's long-term stock values could remain high, they would have ways to use the company 's stock to hedge its investments in these other entities. They did this through a very complex arrangement of SPEs they called the Raptors, a group of entities designed to both buffer Enron’s earnings from mark-to-market write-downs and to pay millions of dollars to a handful of Enron executives and their friends The Raptors were established to cover their losses if the stocks in their start-up businesses fell. It was very clever, but wrong. In order for the Raptor to come through, the
References: Enron—What Happened? (2009). In Britannica Book of the Year, 2003. Retrieved February 3, 2009, from Encyclopædia Britannica Online: http://search.eb.com/eb/article-9389621 Fox, L. (2003). Enron: The Rise and Fall (pp. 176-180). Hoboken, NJ: John Wiley and Sons. Holtzman, M. P., Venuti, E., & Fonfeder, R. (2006). Enron and the Raptors. The CPA Journal . Powers , W. C., Troubh, R. S., & Winokur , H. S. (202). Enron Case Study. Report of Investigation by the Special Investigative Committee of the Board of Directors of Enron Corp (pp. 1-200).