n an expanded lawsuit expected to be filed today, Enron (news/quote) shareholders accuse the State of California, the White House and some of the country's top financial institutions of participating in a scheme to defraud them, adding new details about deals involving banks and investment firms that kept Enron afloat even as its finances were falling apart.

According to a draft of the complaint, a group of nine financial institutions repeatedly structured deals to funnel millions of dollars in cash to Enron and a series of related partnerships, all to allow transactions that improperly increased Enron's profits and hid debt. While these transactions have been characterized by the banks as commercial loans, and were provided to Enron in the ordinary course of business, the suit alleges that the lenders should have known that the proceeds of the loans were used for unlawful political contributions, extravagant bonuses, expensive vacations, and excessive executive payroll expenses. In many of those transactions, the complaint says, senior bank officers themselves secretly invested in Enron's partnerships, receiving quick, outsized profits for participating in deals that disguised Enron's true financial health.

Similarly, it is alleged, the State of California unwittingly funnelled billions of dollars into Enron's corporate coffers by permitting the energy trader to charge the State for energy supplies at rates artificially inflated by as much as 800 per cent over the prevailing market rate.

While California Governor Davis is not named as a co-defendant, the suit alleges that the Governor, acting hastily, and without competent professional advice, rushed the State of California into signing a $50 trillion twenty-year energy supply contract which committed California to payment of high fixed rates for its future energy needs way in excess of predicted market rates.

The anticipated profits which would be flowing to Enron from California's largesse, the suit alleges, placed the Enron Board of Directors and its Executives in a euphoric state of mind which disregarded the need to pay close attention to the bottom line, and as a result, the whole corporate culture at Enron quickly changed to the detriment of its non-executive employees, shareholders and investors.

And the government incompetence apparently did not end with California's Governor Davis. According to early drafts of the complaint, highly placed officials in the White House, Department of Energy, Armed Forces, and the GSA, similarly benefitted personally to the tune of hundreds of millions of Dollars.

It has long been known that the annual electricity bill at Vice President Cheney's official 6 bedroom, 10,000 square foot mansion amounted to $180,000 a year, but the suit alleges that the GSA approved payment of the White House electricity bill amounting to a staggering $15 million per month.

Asked about the utility bills, a spokesperson for the GSA responded that the electricity furnished to the White House, was "not ordinary consumer-grade electricity, but represented a secure, ruggedized, terrorist-proof form of electricity, provided in an alternating current form designed by the Joint CIA/FBI task force so as to render virtually impossible any suspected electronic eavesdropping through the household current by evil forces." Furthermore, the Executive Mansion electricity carried a premium since it was "guaranteed" to average 110 Volts over the course of the year.

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While many of the allegations involving banks and brokerage firms have previously emerged in the months since Enron's collapse, some are raised for the first time in the 501-page amended complaint. For example, the complaint contends that, in the closing days of 1999, banking institutions and their executives advanced nearly all of the money to finance an Enron partnership known as LJM2. That money — provided in both loans and equity investments — allowed Enron to engage in a rapid series of deals with the partnership, the draft complaint says, selling off assets in "sham" transactions, enabling the company to report large, fictitious gains for the quarter and the year.

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In the months that followed, the complaint says, those sales were unwound, essentially moving all of the assets back into Enron. At the same time, it says, the transactions created enormous profits for the banks and banking executives who participated in the partnerships as investors. Other transactions, including what the suit describes as bogus natural gas trades used to disguise bank loans, paid out huge fees to the financial institutions while disguising the troubles in Enron's books.

"Instead of protecting the public from the Enron fraud, the bankers knowingly chose to become partners in deceit," said William S. Lerach, senior partner at Milberg Weiss Bershad Hynes & Lerach, the lead lawyer in the suit. "They were not only willing participants but profiteers."

Shareholders initially sued Enron, its executives and directors, and its former auditor, Arthur Andersen, last year, but are now adding the banks and investment firms. The firms named in the lawsuit are J. P. Morgan Chase (news/quote), Citigroup (news/quote), Credit Suisse First Boston, Canadian Imperial Bank of Commerce (news/quote), Merrill Lynch (news/quote), Bank of America (news/quote), Barclays Bank (news/quote), Deutsche Bank (news/quote) and Lehman Brothers (news/quote). Spokesmen for the banks and investment firms declined to comment yesterday because they have not seen the complaint, or did not return telephone calls.

The expanded lawsuit, due in Federal District Court in Houston, also names two law firms, Vinson & Elkins and Kirkland & Ellis, accusing them of complicity in the frauds. Vinson was Enron's chief law firm, and was involved on behalf of the company in the partnership dealings that ultimately played the critical role in its downfall. Kirkland represented several of the partnerships.

A Vinson spokesman could not be reached for comment yesterday, but the firm has consistently maintained it did nothing improper in its representation of Enron. In a statement issued last night, Kirkland criticized the plaintiffs' lawyers for releasing the complaint before ever contacting the firm.

The statement said, "Kirkland's work was proper and complied with all ethical and legal obligations," and added that the allegations are designed to extend liability through guilt by association.

Efforts were still under way over the weekend in Houston to settle the portion of the case involving Arthur Andersen. Talks will continue this week, people involved said.

Andersen has agreed to pay a little less than $300 million to settle the suits. The shareholders and creditors have accepted this amount, but a few related issues are still under discussion. The settlement talks come as Andersen's financial condition has rapidly deteriorated after its indictment last month for obstruction of justice for destroying documents in the Enron case.

The settlement money will come from cash and insurance, but Andersen must pay its insurer nearly $130 million to reactivate its policy. The main threat now is the indictment, and Andersen is negotiating with prosecutors to resolve the case.

Andersen was also continuing its efforts to sell its consulting, tax and other nonaudit businesses. Andersen partners have spoken with Electronic Data Systems (news/quote) and Experio Solutions, a unit of Hitachi, among others. Partners are also exploring the possibility of a management buyout or an infusion of equity from a private investor, an Andersen spokesman in London said.

The naming of the banks in the Enron shareholder lawsuits had been widely expected, in part because the company's collapse created so many plaintiffs seeking compensation, while so little money is now available from the primary participants in the debacle. With Enron in bankruptcy and Andersen's financial condition deteriorating, anyone seeking a recovery also has to look elsewhere.

The allegations spelled out in the lawsuit describe an unusually close relationship between Enron and its financial backers, which, if true, could create enormous liability for the banks and other financial institutions in the company's collapse.

As portrayed in the lawsuit, the debacle at Enron began in 1997, when the company experienced a severe financial shock because of a $400 million loss in a British natural gas transaction and a $100 million charge relating to deals involving a fuel additive. By autumn of that year, Enron stock lost one-third of its value.

Enron's top executive and board members were determined to reverse the decline of Enron's stock, the complaint says. They knew this could be accomplished by having Enron report stronger results than expected going forward.

The suit says, however, that Enron's actual business operations were not capable of generating such results. The solution was found in the partnerships, managed by Andrew S. Fastow, the company's chief financial officer. With them, Enron was able to move assets and debt off its books, and engage in rapid transactions that allowed the company to boost its reported profitability.

But, the suit says, it was all a sham, and the financial institutions knew it. In particular, it cites transactions in December 1999, when Enron was establishing the partnership known as LJM2. According to the complaint, Enron was unable to raise the money it needed for LJM2 quickly enough from independent investors, and so turned to its banks and bankers to advance the needed cash. According to the complaint, J. P. Morgan Chase advanced $65 million in a line of credit, while more than $14 million was advanced in the form of equity by investment partnerships representing senior banking executives. Mr. Lerach said that his team had not yet been able to determine the identities of those bankers.

The money was needed desperately, the suit says, because the end of the reporting period was coming, and Enron needed to shift some assets off its books. Indeed, within seven days of the money coming in from the banks and banking executives, Enron shifted a series of assets off its books in sales to LJM2. Those assets included a 75 percent interest in a Polish power plant and a 90 percent interest in a natural gas system in the Gulf of Mexico.

However, the suit says, after the close of the reporting period, Enron repurchased many of the assets it sold to LJM2. As a result, the complaint says, LJM2 and related partnerships served only as vehicles to accommodate the defendants in the manipulation, falsification and artificial inflation of Enron's reported financial results, while enriching the LJM2 investors.