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USA: Enron's New $5 Billion Black Hole

Investigators Extend Probe to Key Firm at Heart of Energy Giant's 3,000 Subsidiaries

by Jamie DowardThe Observer (UK)
January 20th, 2002

Investigators probing the accounts of collapsed energy giant Enron are examining what happened to more than $5 billion in loans and investments the company made to subsidiaries kept off its balance sheet. The scale of the black hole opening up looks as if it could dwarf previous estimates.

Investigators are already examining a series of undeclared transactions between the US Company and two Cayman Islands firms -- LJM1 and LJM2 -- set up by the firm's former chief financial officer, Andrew Fastow.

Now it has emerged that by 31 December 2000 Enron had also invested, or loaned, $5.3 billion to a number of companies in which it had stakes, according to papers filed with the US Securities and Exchange Commission. These included two ailing firms that had been harming their parent's financial performance, water specialist Azurix and the Dabhol Power Company of India. The subsidiaries -- part of a network of more than 3,000 firms linked to Enron -- which do not have to be shown on balance sheets.

Fastow's activities have already forced Enron to restate its accounts so that they show a $1.2 billion reduction in shareholders' equity. And a special committee Enron established has concluded that further black holes may be found.

Now investigators are believed to be turning their attention to one key 'unconsolidated' subsidiary, WhiteWing Associates, which itself has 75 subsidiaries.

WhiteWing crops up throughout Enron's SEC filings. In 2000 and 1999, respectively, Enron sold '$632 million and $192 million of investments and other assets to WhiteWing', the papers say. Enron refuses to discuss WhiteWing, which in turn was involved in several transactions with LJM1 and LJM2.

WhiteWing lists an investment vehicle, Osprey Trust, as a limited partner. The trust is owned by a number of anonymous financial institutions -- which suggests the investigators will have to cast their net far wider to understand the true complexities behind Enron's downfall.

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