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At the center of Enron Corp.’s web of finances sits LJM2 Co-Investment LP — a secretive entity hatched by Enron’s former chief financial officer. Until last month, it was run by Michael Kopper, the energy company’s one-time managing director for North America. Enron’s dealings with LJM2 and other partnerships have been the subject of scathing criticism from Congress and a more restrained, if equally damning, assessment in a recent report for a committee of Enron’s board. Now court records from a little-noticed Delaware dispute between Kopper and a group of LJM2′s outside investors expose some of the inner workings of that partnership. The records also reveal new details about who put money into it. To Enron’s critics, the special partnerships such as LJM2 are little more than shells created to mask the company’s true financial state. But LJM2 is more than a paper company. It is a nearly $400 million fund whose stated aim was to do deals with Enron. In one such deal, LJM2 in 2000 purchased excess fiber optic capacity — known as “dark fiber” — from an Enron subsidiary. The deal ensured LJM2 a healthy return and allowed Enron to record a $54 million gain. According to the court record in the lawsuit, filed Jan. 8 in Delaware Chancery Court in Wilmington, LJM2 drew on investments from dozens of individuals and institutions. There were Wall Street heavy-hitters such as Merrill Lynch & Co. and insurers such as American International Group Inc. and there were wealthy individual investors such as Leon Levy, the former chairman of OppenheimerFunds Inc. Their investments range from as little as $500,000 to as much as $30 million. Questions of who invested in LJM2 could be critical to investigators and plaintiffs lawyers trying to sort out what happened at Enron — and who, if anyone, will ultimately pay for the company’s collapse. Kopper and the LJM2 partnership are defendants in numerous suits filed by Enron shareholders. A PARTNERSHIP IS BORN LJM2 was formed in October 1999 by Enron’s former chief financial officer, Andrew Fastow, as an “alternative, optional source of private equity for Enron to manage its investment portfolio risk, funds flow, and financial flexibility,” according to a memo prepared last May for Enron counsel by New York’s Fried, Frank, Harris, Shriver & Jacobson. The Feb. 1 report prepared by Wilmer, Cutler & Pickering on behalf of a committee of Enron’s board offers one reason Enron executives opted to create LJM2 and its related partnerships: They were a way to avoid public disclosure of other Enron losses. For some time, LJM2 accomplished just that by investing in complex hedging transactions with Enron — in essence, by contracting to offset Enron’s losses on various investments. But to make this happen, LJM2 needed cash. Fastow — and later Kopper, to whom Fastow eventually sold his stake in the fund — turned to Wall Street to raise it. Documents from the Delaware litigation reveal the identities of 47 of the 52 investors — or limited partners — who have committed capital to LJM2. All told, those limited partners agreed to invest nearly $400 million — putting up some cash when they signed on, and agreeing to deliver more when asked by LJM2 management. According to the partnership agreement, Merrill Lynch was the placement agent for LJM2, meaning Merrill worked to enlist the limited partners. Since its formation, LJM2′s biggest outside investors have been large institutions. They include two AIG divisions, which together put up $30 million, and the Arkansas Teacher Retirement System, which committed another $30 million. Three JPMorganChase entities — Chemical Investments Inc., JP Morgan Partners, and Sixty Wall Street Fund LP — committed a total of $25 million. Spokespeople for AIG and JPMorganChase declined to comment. An official with the Arkansas teachers group did not return a call seeking comment. Merrill Lynch found investors for LJM2 among the bank’s clients. Merrill alsoinvested in the partnership on its own behalf, and the bank’s executivesinvested for themselves. An entity called ML IBK Positions Inc. committed $5million of the bank’s money. Another vehicle — ML/LJM2 Co-Investment LP –promised $16.6 million from individual Merrill executives. Cariddi referred a call seeking comment to an in-house attorney, Gary Dolan, who did not return a subsequent phone call. Joe Cohen, a Merrill spokesman, declined to comment. Several limited partners in LJM2 were wealthy, and well-known, individuals. John Friedenrich, a founding partner in what is now Gray Cary Ware & Friedenrich and a former chairman of the board of Stanford University, signed on for $6 million through two personal investment vehicles. Friedenrich is a partner at Silicon Valley venture capital fund Bay Partners. He could not be reached for comment. Other individual investors either could not be reached, did not return calls, or declined to comment. They include Jack Nash, who ran the highflying Odyssey Partners hedge fund in New York, and his son Joshua Nash, who now runs New York fund Ulysses Partners. The Nashes — father and son — committed a total of $8 million. Leon Levy, Jack Nash’s colleague at Odyssey and at Oppenheimer Funds, where Levy was chairman, also invested $4 million. Princeton University’s Institute for Advanced Study, of which Levy is vice-chairman, invested $5 million. George Rohr, president of Russian and Eastern European investment fund NCH Capital Inc., in New York, committed $3 million. Gordon Hargraves, vice president of New York investment firm RHO Fund Investors and a one-time adviser to the Bank of Kuwait, personally put in $500,000. Hargraves’ firm committed another $15 million. Whether any of the investors actually received cash as a return on their investments is unclear. But according to Wilmer Cutler’s report to the Enron board, Fastow told his limited partners in October 2000 that several LJM2 deals with Enron had racked up returns of up to 2,500 percent. A PARTNERSHIP UNRAVELS How much did the investors know about the relationship between LJM2 and Enron? Clues are found in the documents and other public records. LJM2′s private placement memo — essentially, a sales brochure — as well as its partnership agreement spell out the multiple roles of the general partner and the linkage with Enron. According to the report for the committee of Enron’s board, the offering memo “emphasized Fastow’s position as Enron’s CFO, and that LJM2′s day-to-day activities would be managed by Fastow, Kopper,” and another Enron employee. The memo states, “the Partnership expects that Enron will be the … primary source of investment opportunities.” The memo also notes that the general partner’s “access to Enron’s information … will contribute to superior returns.” The LJM2 partnership agreement — the contract each limited partner had to sign to join the fund — goes into elaborate detail on the range of deals LJM2 would be expected to enter into with Enron. It also highlights the potential conflicts of interest involved. When Enron’s stock performance was earning accolades from Wall Street and the press, those terms just made the deal look sweeter to investors, according to bankers and lawyers familiar with the matter. As one official at a major Wall Street bank observes, the LJM2 private placement memo resembled a private invitation to invest in, say, an auto parts company run by the CFO of General Motors. But after Enron’s woes came to light last fall — and were linked to Fastow, Kopper, and LJM2 — several limited partners decided Fastow’s close ties to Enron had become a liability, not an asset. In December, court records show, Kopper made a capital call — or a demand for cash — to LJM2′s investors. He needed the money to pay down a $70 million line of credit from several banks, including Dresdner Bank, which had called in the debt. A group of the limited partners balked. And by Jan. 2, 45 of them had signed off on consent forms voting for Kopper’s removal and the installation of Partnership Services, an affiliate of New York workout specialist Jay Alix & Associates. Two days later, Partnership Services and several limited partners signed off on an amended version of the LJM2 partnership agreement and filed it in Delaware. Partnership Services also gained control of LJM2′s bank account, according to court records — and purchased a $25 million insurance policy for itself. Among the amendments is a provision “compromising” — or effectively cancelling — Kopper’s capital call. The amendments also appear intended to seal Kopper off from the indemnification provided by the partnership. Under the original partnership agreement, limited partners could be personally obligated to cover the cost of indemnifying the general partner. Court filings and a hearing transcript make clear that the investors are now seeking to protect their investments in LJM2. And they appear to be maneuvering to shield themselves from potential liability from the Enron debacle. In a Jan. 10 hearing, the LJM2 investors’ lawyers — from New York’s Simpson Thacher & Bartlett and Wilmington’s Potter, Anderson & Corroon — persuaded Vice Chancellor Jack Jacobs to temporarily remove Kopper. Jacobs also signed off on the investors’ installation of Partnership Services as LJM2′s new general partner — at least temporarily. An oral argument on the merits of Kopper’s permanent removal is slated for Feb. 28. Kopper, for his part, argues in court documents that some of the consent forms are defective and the amendment invalid. All of the lawyers in the case either declined to comment for this article or did not return phone calls seeking comment. Calls to Kopper at the LJM Investments office in Houston were referred to a colleague, who directed inquiries to Edward Horahan III, one of Kopper’s personal lawyers, in the D.C. office of Dechert. Horahan did not respond to a call seeking comment. Kopper has also retained Dechert’s Wallace Timmeny to represent him in ongoing government investigations. In the Delaware litigation, another Dechert partner, Frank Eisenhart, had represented Capital Management — the legal entity controlled by Kopper. But Eisenhart withdrew from the case on Jan. 29, citing a “newly determined conflict of interest.” According to a lawyer with knowledge of the matter, Citicorp is a Dechert client. Citicorp is one of the LJM2 limited partners seeking Kopper’s ouster. Capital Management continues to be represented in the dispute by Craig Smith and David Jenkins of Wilmington’s Smith, Katzenstein & Furlow. Lawyers with knowledge of the matter say that Capital Management, which is based in Houston, has also retained Eric Nichols of Houston’s Beck, Redden & Secrest. Michael Goldman, of Potter Anderson, and Joseph McLaughlin, of Simpson Thacher, represent the investor-plaintiffs, which include the American Home Assurance Co., the CIBC Capital Corp., Morgan Stanley Investments, and the Travelers Co. Susan DiCiccio and Jeffrey Smith, of the New York office of Atlanta’s King & Spalding, represent Jay Alix & Associates, now running LJM2. Local counsel is Henry Gallagher Jr. of Wilmington’s Connolly Bove Lodge & Hutz.

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