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First Consolidated and Amended Complaint in The IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF TEXAS HOUSTON DIVISION PAMELA M. TITTLE; THOMAS O. PADGETT; FIRST CONSOLIDATED AND AMENDED GARY S. DREADIN; JANICE FARMER; COMPLAINT LINDA BRYAN; JOHN L. MOORE; BETTY J. CLARK; SHELLY FARIAS; PATRICK CIVIL ACTION NO. H 01-3913 CAMPBELL; FANETTE PERRY; CHARLES AND CONSOLIDATED CASES PRESTWOOD; ROY RINARD; STEVE LACEY; CATHERINE STEVENS; ROGER W. BOYCE; WAYNE M. STEVENS; NORMAN L. and PAULA H. YOUNG; MICHAEL L. MCCOWN; DAN SHULTZ, on behalf of themselves and a class of persons similarly situated, and on behalf of the Enron Corp Savings Plan, the Enron Corp Employee Stock Ownership Plan and the Enron Corp. Cash Balance Plan, Plaintiffs, v. ENRON CORP., an Oregon corporation; ENRON CORP. SAVINGS PLAN ADMINISTRATIVE COMMITTEE; ENRON EMPLOYEE STOCK OWNERSHIP PLAN ADMINISTRATIVE COMMITTEE; CINDY K. OLSON; MIKIE RATH; JAMES S. PRENTICE; MARY K. JOYCE; SHEILA KNUDSEN; ROD HAYSLETT; PAULA RIEKER; WILLIAM D. GATHMANN; TOD A. LINDHOLM; PHILIP J. BAZELIDES; JAMES G. BARNHART; KEITH CRANE; WILLIAM J. GULYASSY; DAVID SHIELDS; JOHN DOES NOS. 1-100 UNKNOWN FIDUCIARIES OF THE ENRON CORP SAVINGS PLAN OR THE ESOP; THE NORTHERN TRUST COMPANY; KENNETH L. LAY; JEFFREY K. SKILLING; ANDREW S. FASTOW; MICHAEL KOPPER; RICHARD A. CAUSEY; JAMES V. DERRICK, JR.; THE ESTATE OF J. CLIFFORD BAXTER; MARK A. FREVERT; STANLEY C. HORTON; FIRST CONSOLIDATED AND AMENDED COMPLAINT 1544.10 0114 BSC.DOC KENNETH D. RICE; RICHARD B. BUY; LOU L. PAI; ROBERT A. BELFER; NORMAN P. BLAKE, JR.; RONNIE C. CHAN; JOHN H. DUNCAN; WENDY L. GRAMM; ROBERT K. JAEDICKE; CHARLES A. LEMAISTRE; JOE H. FOY; JOSEPH M. HIRKO; KEN L. HARRISON; MARK E. KOENIG; STEVEN J. KEAN; REBECCA P. MARK-JUSBASCHE; MICHAEL S. MCCONNELL; JEFFREY MCMAHON; J. MARK METTS; JOSEPH W. SUTTON; ARTHUR ANDERSEN & CO. WORLDWIDE SOCIETE COOPERATIVE; ARTHUR ANDERSEN, LLP; UK ARTHUR ANDERSEN, DAVID B. DUNCAN; THOMAS H. BAUER; DEBRA A. CASH; ROGER D. WILLARD; D. STEPHEN GODDARD, JR.; MICHAEL M. LOWTHER; GARY B. GOOLSBY; MICHAEL C. ODOM; MICHAEL D. JONES; WILLIAM SWANSON; JOHN STEWART; NANCY A. TEMPLE; DON DREYFUS; JAMES FRIEDLIEB; JOSEPH F. BERARDINO; DOES 2 THROUGH 1800 UNKNOWN PARTNERS IN ANDERSEN LLP; MERRILL LYNCH & CO., INC.; J.P. MORGAN CHASE & CO.; CREDIT SUISSE FIRST BOSTON CORPORATION; CITIGROUP, INC.; SALOMON SMITH BARNEY INC.; VINSON & ELKINS, LLP; RONALD T. ASTIN; JOSEPH DILG; MICHAEL FINCH; and MAX HENDRICK III, Defendants. FIRST CONSOLIDATED AND AMENDED COMPLAINT 1544.10 0114 BSC.DOC TABLE OF CONTENTS PAGE I. NATURE OF THE ACTION ..............................................................................................1 II. JURISDICTION AND VENUE..........................................................................................8 III. PARTIES .............................................................................................................................8 A. Parties.......................................................................................................................8 1. Plaintiffs.......................................................................................................8 2. Defendants .................................................................................................15 a. Plan-Related Defendants................................................................15 b. Northern Trust – ERISA Fiduciary Defendant ..............................18 c. Enron Insider Defendants ..............................................................18 d. Compensation Committee Defendants ..........................................25 e. Accountant Defendants and Their Role in the Conspiracy............25 f. Investment Banking Defendants....................................................40 IV. THE EMPLOYEE VICTIMS OF DEFENDANTS’ ILLEGAL CONDUCT ...................45 A. The Enron Corp. Savings Plan...............................................................................46 1. Participant Contributions...........................................................................46 2. Company Contributions.............................................................................46 3. Vesting .......................................................................................................47 4. Investment Options....................................................................................47 5. Assets .........................................................................................................47 B. The Enron Corp. ESOP..........................................................................................48 C. Enron Corp. Cash Balance Plan.............................................................................50 D. Phantom Stock .......................................................................................................52 FIRST CONSOLIDATED AND AMENDED COMPLAINT - i 1544.10 0114 BSC.DOC V. FACTUAL ALLEGATIONS ............................................................................................53 A. Background Information........................................................................................53 B. Enron’s False and Misleading Financial Results are Reported to Unsuspecting Employees and the Market..............................................................56 C. False and Misleading Statements Issued Directly to Savings Plan Beneficiaries and ESOP Participants.....................................................................67 D. Bad News Begins to Emerge Regarding Enron’s True Financial Condition.........86 E. Enron’s Use of “Off-Balance-Sheet-Partnerships” to Enhance Its Financial Statements in Violation of Accounting Principles and Regulations Led to the Restatements.....................................................................90 1. JEDI and Chewco transactions ..................................................................92 2. LJM1 Transactions.....................................................................................94 a. The Rhythm NetConnections Transactions ...................................94 3. LJM2 Transactions.....................................................................................96 a. Raptor Transactions.......................................................................97 b. LJM2 Limited Partnership Interests Were Sold Through a Private Placement Memorandum ..............................................103 c. The October 26, 2000 LJM2 Annual Partnership Meeting..........105 d. The April 2001 letter from defendant Fastow to limited partners.........................................................................................106 e. Enron Ultimately Reacquires the Raptor Assets..........................107 F. Enron, Andersen and V&E Were Involved in Creating and Implementing Numerous Other Off-Balance Sheet Arrangements.....................108 1. The New Power Scheme..........................................................................108 2. Project “Braveheart”................................................................................113 3. The Osprey Trust .....................................................................................116 4. Azurix ......................................................................................................118 5. Other Off-Balance Sheet Entities.............................................................120 FIRST CONSOLIDATED AND AMENDED COMPLAINT - ii 1544.10 0114 BSC.DOC G. Enron’s Financial Statements From December 31, 1997 Through June 30, 2001 Were Materially False and Misleading and Violated GAAP and SEC Regulations ...............................................................................120 1. Failure to Consolidate the Results of Related Entities into Enron’s Financial Statements ..................................................................122 2. Failure to Disclose Related Party Transactions .......................................125 3. Enron’s Improper Accounting For Certain Common Stock Issued.........128 4. Enron’s Failure to Make Proposed Audit Adjustments ...........................128 5. Restatement of Interim Results Demonstrates Contemporaneous Knowledge or Reckless Disregard of Their Previous Falsity..................129 VI. THE RELATED PARTY TRANSACTIONS SHOULD ALSO HAVE BEEN DISCLOSED IN THE NONFINANCIAL SECTIONS OF ENRON’S REGISTRATION STATEMENTS AND ANNUAL REPORTS DURING THE PERIOD ..................................................................................................................131 VII. ANDERSEN PLAYED A ROLE IN DECIMATING THE ASSETS OF THE SAVINGS PLAN AND THE ESOP.......................................................................132 A. Particular Examples of Andersen’s Misconduct..................................................133 1. The Chewco Transaction .........................................................................133 2. The LJM and Raptor Transactions..........................................................134 B. Overall Audit Failures..........................................................................................136 C. Andersen’s Role As Auditor Of The Savings Plan..............................................138 D. Andersen’s Destruction of Key Audit Documents ..............................................140 E. Andersen Ignores the Accounting Decisions of Its Internal Experts to Play Along With Enron’s Accounting Mistreatments .........................................150 VIII. ANDERSEN’S REPEATED MISCONDUCT................................................................152
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