Harvey Pitt -SEC
Chewco is a $383 million investment partnership allegedly arranged by Enron's former chief financial officer Andrew Fastow in 1997 to keep Enron's debt off its balance sheets.
Chewco, named after a Star Wars character Chewbacca, was part of a cluster of partnerships that executed different roles in billion-dollar financing deals. Funded by money invested in Enron and without investor knowledge, the partnership involved Fastow and an off-shore financial group he controlled.
The story of Chewco began nearly a decade ago in 1993 when Enron and the California Public Employees Retirement System (Calpers) created a 50-50 partnership known as the Joint Energy Development Investment Limited (JEDI). At the time, Enron did not include JEDI in its earnings since it did not own more than 50 percent of the partnership.
Then in 1997, Fastow created Chewco which bought Calpers' stake in JEDI. With the purchase, Enron and Fastow essentially owned JEDI. However, since Fastow and his partners had organized Chewco in such a way, the entire partnership was kept off of Enron's books. Since Chewco was not included, the JEDI partnership, still apparently run by Enron and an outside group, also remained off the balance sheet.
Consequently, the Chewco "partnership" made it possible for Enron to keep roughly $600 million off its books. Once federal investigators and auditors discovered that Chewco was actually Enron, the SEC forced Enron to restate its earnings since 1997. Hence, Enron's restated earnings included Chewco's, and JEDIs, huge losses into its balance sheets. The JEDI and Chewco deals also allowed some Enron executives to turn personal profits in the millions.
As the largest of these partnerships, the Chewco deal accounted for about 80 percent of profit overstatements related to such partnerships.