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Further to the story about Alan Greenspan's "Enron
Prize" from the "James A. Baker III Institute for Public Policy" at Rice
University. The following account of Enron business transactions is from the
Jan. 7 Forbes. The kicker is in the penultimate sentence.
In June 2000, for example, Enron sold $100 million worth of "dark
fiber,
" or fiber-optic cables without the electronic gear necessary to transmit digitized information. The "buyer" was a partnership run by Fastow called LJM2 (the acronym reportedly comes from the initials of his wife and children), set up in 1999 to trade assets with Enron. On that deal, Enron booked a $67 million profit, a significant piece of the $318 million gross profit the company reported for the broadband business in 2000. LJM2 later sold $40 million of the dark fiber to what Enron refers to as "industry participants," and the remainder to another Enron-related partnership for $113 million in December. What's curious is that the value of the fiber ostensibly increased 53% between June and December--during the same time that, in open markets at least, the value of dark fiber plunged by 67%. LJM2 reaped a $2.4 million profit from the fiber trade, contributing to the $30 million of undisclosed gains the LJM partnerships delivered to Fastow, according to Enron. Shouldn't Enron's top management or its auditors have sought the identity of the buyers who so overpaid for the fiber asset? One wonders. And where, by the way, was all this fiber? That $100 million, say a fiber broker and an industry analyst, would have bought at least 33,000 miles of single-strand dark fiber in June 2000--enough to string up three nationwide networks--and considerably more by December. Enron's entire network, presumably consisting of multiple strands, was 18,000 miles at the time, with much of that fiber leased. The deal went undisclosed at a time when Skilling and Lay were talking up the great prospects for Enron's broadband business. There's something else they neglected to mention. Enron provided what its current 10-Q calls "credit support" to the ultimate buyer, guaranteeing the debt. But if the partnership defaulted, Enron was on the hook for $61 million of the $67 million it booked as profits. Former employees say Enron's broadband business consisted largely of such questionable deals. To win a $20 million broadband services contract from Rice University in Houston, for example, Enron donated $5 million to the school, and Ken Lay's personal foundation kicked in another $3 million. Unreported was the fact that Rice dropped the contract soon after. Tom Walker
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