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Enron Mail |
Initial thoughts -
Can we use Enron Australia as the counterparty to avoid these issues for now, and then when a book has been established assign all the positions to Enron Japan? Can we get (or maybe give?) the rep if we soften it a bit by taking out the word "ordinary" or maybe the entire phrase "in the ordinary course of its business"? Is there a government agency that can give us an opinion or "no action" type of letter to give us some comfort that we are OK? It may not be quick enough to get us through this trade but it might open the door for future business. If the end result is that there is no adequate fix and local counsel advises that we are taking significant potential criminal liability, I would think that both parties would be willing to agree to unwind the trade. If necessary, my suggestion would be to raise the potential for criminal sanctions issue to Mark H. (What are the potential sanctions?) Jane McBride@ENRON 10/20/2000 05:26 AM To: Jeremy.Pitts@BAKERNET.com cc: Alan.Aronowitz@enron.com, Mark.Evans@enron.com, Mark.Taylor@enron.com, Paul.TYO.Davis@BakerNet.com Subject: RE: ... Urgent Weather Derivative Advice ... Have spoken with Joe Hirl. If there was any way we can take advantage of or use for the purposes of establishing Enron Japan weather exposure, all the exposure of other Enron companies, this should help us to establish legitimate weather exposure. Enron always has weather risk and we keep a global weather book although of course we have open positions sometimes. Obviously we are mostly concerned about criminal liability. It seems to us that if we cant do the first deal, there is no position for market makers here, which just doesn't make sense. Thanks. Jane McBride Senior Legal Counsel Enron Japan Corp. Otemachi 1st Square Bldg. West 11th Floor 1-5-1 Otemachi, Chiyoda-ku Tokyo 100-0004 Japan Tel.: 81-3-5219-4500 (Main) 81-3-5219-4553 (Direct) Fax: 81-3-5219-4510 Assistant (Maggy Yamanishi) Tel.: 81-3-5219-4554 Email: Yo.Yamanishi@enron.com Jeremy.Pitts@BAKERNET.com 10/20/2000 06:17 PM To: Jane.McBride@enron.com cc: Alan.Aronowitz@enron.com, Mark.Evans@enron.com, Mark.Taylor@enron.com, Paul.TYO.Davis@BakerNet.com Subject: RE: ... Urgent Weather Derivative Advice ... Thanks Jane - I am scheduled to meet the Japanese lawyers on Monday morning and will let you have our reply as soon as I can. Best regards Jeremy -----Original Message----- From: Jane.McBride@enron.com [mailto:Jane.McBride@enron.com] Sent: Friday, October 20, 2000 6:18 PM To: Jeremy.Pitts@BAKERNET.com Cc: Alan.Aronowitz@enron.com; Mark.Evans@enron.com; Mark.Taylor@enron.com Subject: ... Urgent Weather Derivative Advice ... << File: Weather-HDD-Floor-OTC-ToaRejmb2000-10-20!.doc << Dear Jeremy, Pls see for your information my email to Alan, Mark and Alan. As discussed, your answers to my questions can be quite brief and pls cross reference previous advice rather than repeating it. I think the answer to question 1 - whether we can give the warranty - has got to be no. So short and sweet on this is fine. Re whether we can go ahead without the same ©(ii) from them (but with ©(iii)) is a harder question and I understand that all you can do is explain our risk and exposure, in light of the current factual situation. This is a risk appetite question at the end of the day. Jane ----- Forwarded by Jane McBride/AP/Enron on 10/20/2000 05:57 PM ----- Jane McBride To: Alan Aronowitz/HOU/ECT@ECT, Mark Taylor/HOU/ECT@ECT 10/20/2000 cc: Jeremy.Pitts@BAKERNET.com, John Viverito/Corp/Enron@Enron, 05:57 PM Jonathan Whitehead/AP/Enron@Enron, Mark Evans/Legal/LON/ECT@ECT, Paul.TYO.Davis@BakerNet.com, Morten E Pettersen/AP/Enron@Enron, Joseph P Hirl/AP/ENRON@ENRON Subject: ... Urgent Weather Derivative Advice ...(Document link: Jane McBride) Dear Alan and Mark, I am going to need you to help me make a risk decision. I welcome input from Mark Evans but he may be more comfortable leaving this up to Alan and Mark because Alan and Mark have been involved in this gambling issue from the beginning. Jeremy Pitts and I have had a brief conversation re my email to him below, this afternoon, but he will not be able to get written comments signed off by Japanese lawyers to me until Monday. The situation relates to the Tokyo's office's first weather derivatives deal, which is with a company called Toa Reinsurance. In a nutshell the situation is that negotiations have come to a standstill because neither side can move on their positions re the gambling warranties. The deal of course though has already been done over the telephone several weeks ago. In a nutshell then, based on discussions with Jeremy Pitts, but to be clarified by Japanese lawyer on Monday, the situation is: 1. In terms of Enron Japan's ability to trade weather derivatives here, we are operating in the grey even if we can get warranty 5©(ii) from them. 2. ToaRe will not give us the important warranty - 5©(ii) below, because they say they can't. They say they are not actually "entering into the deal to hedge weather related risks arising in the ordinary course of their business" - which is what the subject warranty says. B&M have advised that the obtaining of this warranty from a counter party helps keep us in the grey and out of the red in terms of what we are doing and also gives us comfort that the counter party can do the deal. 3. ToaRe is, in addition, separately asking us to give them the same warranty. Jane McBride analysis Re 3 - Given that our legal situation is grey at best, I do not think we should be giving the warranty they have requested. They say they will not give us that warranty. The issue then is whether we can go ahead without getting the warranty from them, bearing in mind that a binding telephone deal has been done. If you agree with me that we can't give the warranty, then we have to decide whether we can go ahead without getting the warranty referred to in (2) above, from them. I am not sure however that in practice we even have a choice given that the trade has been done. If we go ahead without giving and without getting the warranty, the risk to us is that we are more likely to be in breach of the prohibition on gambling in the Criminal Law. Are we willing to take this risk and who needs to give me this answer? Jane Jane McBride To: Jeremy.Pitts@BAKERNET.com 10/20/2000 cc: Paul.TYO.Davis@BakerNet.com, Alan Aronowitz/HOU/ECT@ECT, John 02:06 PM Viverito/Corp/Enron@Enron, Mark Evans/Legal/LON/ECT@ECT, Jonathan Whitehead/AP/Enron@Enron, Mark Taylor/HOU/ECT@ECT Subject: ... Urgent Weather Derivative Advice ...(Document link: Jane McBride) (See attached file: Weather-HDD-Floor-OTC-ToaRejmb2000-10-20!.doc) Dear Jeremy, I would like to refine the following instructions. There are two (only) issues on which we need specific written advice and they both relate to Warranty ©(ii) of the draft which says "XYZ is entering into a weather derivative transaction to hedge weather related risks arising in the ordinary course of its business". 1. (a) Can Enron Japan give the warranty at this stage in its growth? Have we already had any written advice from you on whether Enron Japan can warrant along these lines? If so, when? If not, the facts seem to be that: Enron Japan plans to trade commodities which are energy related but because we are still building up the business we are not trading these products yet. As you know, we are getting into the power market. If we have done a weather derivative, then we can of course offer better prices on the electricity deals we are negotiating. Other Enron companies are of course already trading many weather dependant commodities and power. It could be argued therefore that unless we can rely on the weather related risks of other Enron companies to justify our weather derivative transacting in these early days, that this is a speculative transaction constituting gambling (depending on how the law on this works). It is understandable that ToaRe would want us to warranty in effect that we are not gambling because we are asking them to do so. I know we have had sign off from B&M re our weather derivative trading but I wonder if anyone considered what the situation would be before we ourselves had other transactions giving us weather related risks. (b) If not, how could it be amended so that we can give it? © If still relevant in the context of your answers to (a) and (b) above, they did offer previously to take out all warranties so that neither party gives any warranties. The deal cannot be cancelled because it was done on the telephone late Sept. Accordingly, what is the practical risk of us proceeding without the benefit of any warranties from ToaRe (including the warranty that they are under the Insurance Business Law - ie an insurance company.)? 2. They are insisting they not give (ii) and that we be satisfied with (iii) only for the purposes of the Gambling Law Pls confirm in writing whether you think we can still go ahead on this basis. Thanks. Jane McBride Senior Legal Counsel Enron Japan Corp. Otemachi 1st Square Bldg. West 11th Floor 1-5-1 Otemachi, Chiyoda-ku Tokyo 100-0004 Japan Tel.: 81-3-5219-4500 (Main) 81-3-5219-4553 (Direct) Fax: 81-3-5219-4510 Assistant (Maggy Yamanishi) Tel.: 81-3-5219-4554 Email: Yo.Yamanishi@enron.com Jane McBride To: Jeremy.Pitts@BAKERNET.com, Paul.TYO.Davis@BakerNet.com 10/20/2000 cc: 10:57 AM Subject: RE: ToaRe documentation(Document link: Jane McBride)
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