Re: Debt Trading Losses

Sally, Brent and Gary,

In a meeting with Bryan, Jeff, Gary and Markus on Monday, November 20th, I
showed Bryan a copy of the monthly price verification procedures and the book
administrator's Price Verification Comparison Spreadsheet . I also showed
Brent this information later in the day, as he had to leave before we all
left.

Therefore, I find Bryan's Operations' bullet wrong and misleading. This is
not the statement that was made and agreed to on Monday when we all met.
This statement is also not consistent with what is actually in the
attachment. You will receive a copy of the price verifcation spreadsheet for
the last six months on Monday.

Please call me or Theresa with questions.
Sheila
---------------------- Forwarded by Sheila Glover/HOU/ECT on 11/24/2000 05:14
PM ---------------------------

Bryan Seyfried
11/24/2000 12:24 PM
To: Sheila Glover/HOU/ECT@ECT
cc: Sally Beck/HOU/ECT@ECT, Brent A Price/HOU/ECT@ECT, Gary
Hickerson/HOU/ECT@ECT, Jeff Kinneman/HOU/ECT@ECT, Tom Doukas/NA/Enron@ENRON,
Theresa T Brogan/HOU/ECT@ECT
Subject: Re: Debt Trading Losses

ok, sorry for the miscommunication, can I get copies of the price
verification memo for the debt book for the last 6 months pls.

From: Sheila Glover 24/11/2000 17:06

To: Bryan Seyfried/LON/ECT@ECT
cc: Sally Beck/HOU/ECT@ECT, Brent A Price/HOU/ECT@ECT, Gary
Hickerson/HOU/ECT@ECT, Jeff Kinneman/HOU/ECT@ECT, Tom Doukas/NA/Enron@ENRON,
Theresa T Brogan/HOU/ECT@ECT

Subject: Debt Trading Losses

Bryan,
I think the second bullet is misleading. The bullet is not reflective of
what is actually stated in the attached document.
There is a month-end price verification process on the Credit book.
Trader pricing is compared to prime broker pricing. Where the mark is
greater that 2 points, the difference is discussed with the trader. Trader
must then amend the mark or provide third party substantiation for the
illiquid position.
The Price Verifiaction Comparison Spreadsheet with broker quotes is filed and
maintained by Risk Management.

The Operations break-down in the process relates to:
Triplets excluded from the monthly price verification process and not
escalated, prioritized to management
Telewest pricing relied on a price from the prime broker which was manually
sourced and not current
Price Verification Comparison results should be formalized and distributed
to senior management.

Thanks. Sheila

---------------------- Forwarded by Sheila Glover/HOU/ECT on 11/24/2000
10:13 AM ---------------------------

Bryan Seyfried
11/23/2000 01:31 AM
To: Richard Causey/Corp/Enron@ENRON, Rick Buy/HOU/ECT@ECT, John
Sherriff/LON/ECT@ECT
cc: Michael R Brown/LON/ECT@ECT, Fernley Dyson/LON/ECT@ECT, Sally
Beck/HOU/ECT@ECT, Ted Murphy/HOU/ECT@ECT, Mike Jordan/LON/ECT@ECT, David A
Wall/Risk Mgmt/LON/ECT@ECT, Jeff Kinneman/HOU/ECT@ECT, Gary
Hickerson/HOU/ECT@ECT, Sheila Glover/HOU/ECT@ECT, Brent A Price/HOU/ECT@ECT,
Richard Sage/LON/ECT@ECT, Bryan Seyfried/LON/ECT@ECT
Subject: Debt Trading Losses

We have discovered two positions in the Debt Trading book which were not
being marked to market. The current mark of the 2 positions results in
approximately $4.7 million loss. The details are in :

The primary control issues are:
? Trader did not adjust price to reflect the effect of market movements
? Operations did not perform monthly price verification processes
? Desk management failed to recognize that the marks on these two trades had
not moved over the term of the transactions (Q1 '00 - Nov 15th)

The losses have been recognized and a full review of the book is ongoing by
Operations. The trader has been relieved of his responsibilities and we will
implement the steps agreed with Operations to ensure that we have a robust
approach to controls for the Debt Trading book going forward.