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Enron Mail |
Jane,
- could you let me know what the Japanese lawyers think of John's argument that this deal is to hedge weather risk arising in the ordinary course of our Japanese business. Seems to me that we honestly believe this to be the case, even though it is too early in the development of our Japanese business to prove it today. Perhaps we should change "arising" to "which will arise"? Does that help? - if that is not a runner, all Mark Taylor's suggestions seemed eminently sensible. Do those work? How about booking the deal from Australia? Tax issues? Does where the deal is booked override the fact that the telephone call was made within Japan? - if none of these work, then cancelling the deal (even if the counterparty is willing) must be the least attractive answer as it is effectively acknowledging fundamental (possibly insuperable) regulatory issues with the weather derivatives trading in Japan. - the other things I would want to understand before reaching a decision would be: - how have other derivatives traders in Japan dealt with this issue? (I presume this is not a problem unique to weather and must have been addressed before in Japan as it has in most other jurisdictions) - how grey an area is this? If we take a reasonable position in this grey area, how real is the risk of both the grey area being resolved against us and criminal sanctions then being invoked against us? - following up on Mark's idea, could we not reduce the (hopefully already minimal) risk of criminal sanctions by going after the event with clean hands to the regulator for an answer. We have done exactly that on a similar issue which arose in the Netherlands recently. I hope that helps. Could we please discuss this on the phone before a decision is made. Thanks. Mark From: John Viverito@ENRON on 20/10/2000 11:18 CDT To: Jane McBride/AP/Enron@Enron cc: Alan Aronowitz/HOU/ECT@ECT, Jeremy.Pitts@BAKERNET.com, Jonathan Whitehead/AP/Enron@Enron, Joseph P Hirl/AP/ENRON@ENRON, Mark Evans/Legal/LON/ECT@ECT, Mark Taylor/HOU/ECT@ECT, Morten E Pettersen/AP/Enron@Enron, Paul.TYO.Davis@BakerNet.com Subject: Re: ... Urgent Weather Derivative Advice ... Jane- Has Jeremy or any of his colleagues, specifically commented on Mr. Wani's (ToaRe's attorney) comments regarding clause 5 c (ii), which were distributed by you on 10/17? By being in the business of trading weather derivatives, may we be considered to be "entering into the deal to hedge weather related risks arising in the ordinary course of business"? I seem to recall that when Alan and I discussed the risks related to trading weather derivatives in Japan with Mr. Wani, he believed that this may be a sufficient argument to legitimize the transaction. We need to confirm with B&M. Cheers, John Jane McBride 10/20/2000 03:57 AM To: Alan Aronowitz/HOU/ECT@ECT, Mark Taylor/HOU/ECT@ECT cc: Jeremy.Pitts@BAKERNET.com, John Viverito/Corp/Enron@Enron, 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 ... 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 10/20/2000 02:06 PM To: Jeremy.Pitts@BAKERNET.com cc: Paul.TYO.Davis@BakerNet.com, Alan Aronowitz/HOU/ECT@ECT, John 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 ... 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 10/20/2000 10:57 AM To: Jeremy.Pitts@BAKERNET.com, Paul.TYO.Davis@BakerNet.com cc: Subject: RE: ToaRe documentation
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