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Jim Mountain.ppt Securitization Tested?The Enron Disaster and Beyond Kellogg School of ManagementSecuritization ColloquiumMay 27, 2003 Jim Mountain Partner, Global Marketsjmountain@212-436-4742 Why is Enron on the Agenda? Little or no direct “securitization” activity Synonymous with “off balance sheet” finance run amok Sparked the firestorm of change that will impact securitization going forward Nexus of the demise of Arthur Andersen Enron’s Got Rhythm Accounting Issues Actions 3% equity consolidation of SPE limited partnerships Guarantees risk transfer Related party transactions Uncollectible receivables Taking profit on own shares FIN 46 FASB 140 amendment FIN 45 Expense stock options? ? ? Other Regulatory Fallout Sarbanes-Oxley Act Public Company Accounting Oversight Board SEC turnover FASB Reorganization FASB Accounting Standards FIN 45 – Guarantees, including securitization reps warranties FIN 46 – Consolidation of VIEs Complicated new risk/return calculus No grandfather exemption for old deals Perverse results FAS 140 Amendment – Further limit QSPEs International Accounting Standards Selected Sarbanes Oxley Actions Officer certifications of financial statements and financial reporting controls Auditors to examine report on financial reporting controls Capital assessment on issuers to fund PCAOB and FASB Trick an auditor ? Go to jail! Jim Mountain Partner, Global Marketsjmountain@212-436-4742 (Fastow) $168 to$276 MM $104 MM $80 MM Sources: Powers Report Joint Committee on Taxation Report February 2002 QUESTIONS?