In their only public statements since Enron filed for bankruptcy on December 2, top company executives have blamed its demise on a collapse of confidence in financial and energy markets.

But public documents filed before the collapse, and others that have since emerged, reveal that the seeds of destruction were sown among a network of affiliates established by the energy trader.

These affiliates, among 3,500 created by Enron, were used to hold assets moved from the parent's balance sheet. Under US accounting rules, such entities are treated as off-balance sheet provided at least 3 per cent of the capital is owned by company outsiders - a hurdle that many accountants now agree is too low.

Many of the assets were performing poorly, and shifting them helped for a while to preserve Enron's image as a dynamic and growing concern. By the end of 1999, according to company estimates now in question, it had moved $27bn of its total $60bn in assets off balance sheet.

The scope and importance of the off-balance sheet vehicles were not widely known among investors in Enron stock, but they were no secret to many Wall Street firms.

Merrill Lynch handled the sales pitch for one such vehicle, LJM2 Co-Investment. According to claims and counter-claims filed in a Delaware court this month, many of the most prominent names in world finance - including Citigroup, JP Morgan Chase, CIBC, Deutsche Bank and Dresdner Bank - were still involved in the partnership, directly or indirectly, when Enron filed for bankruptcy.

The entities were also backed by public and private pension funds, and other private equity investors ranging from the Arkansas Teacher Retirement System to Mousse Partners, a fund backed by the family that controls the Chanel fashion house, according to documents uncovered by the weekly magazine Arkansas Business.

Other documents disclose how LJM2 was just one element in a complex web of vehicles set up by Enron. By October 2000, for example, the overwhelming majority of investments held by LJM2 were in other Enron special purpose entities (SPEs), with names such as Raptor, Osprey, Zenith and Rawhide.

Enron capitalised some of these vehicles not with cash, but with its own shares or arrangements that provided a so-called "economic interest" in the value of these shares. While Enron's share price was rising, this meant that such vehicles were well, or overcapitalised. But once the shares started falling it triggered alarm bells in Enron, forcing the company to inject more shares into some of the vehicles to keep up its side of the bargain.

Many of these SPEs were set up to draw money in from outside investors. LJM2 sucked in $394m of capital commitments - some $245m of which had been funded by October 2000, from financial institutions and individuals.

An early SPE, known as Jedi and set up in 1993, secured $250m from Calpers, the California Public Employees Retirement System, and generated a 23 per cent internal rate of return for Calpers by the time it cashed out in 1997. Calpers committed a further $500m to Jedi II, its successor, though it froze the investment at $175m during California's energy crisis last year, a spokesman said.

Another vehicle, Osprey, borrowed a total of $2.4bn in 1999 and 2000 from US and European investors through bond offerings lead managed by Deutsche Bank and Donaldson, Lufkin & Jenrette.

Setting up such vehicles is common practice among US companies and the extent to which accounting rules were bent or ignored in Enron's case is not yet clear.

Nobody has yet established, either, whether Enron's use of the SPEs was fraudulent. But as Robert Verrecchia, accounting professor at the University of Pennsylvania's Wharton School, puts it: "If you want to take a special purpose vehicle and use it to hide stuff, you can satisfy the letter of the rules, if not the spirit."

It is easy to see why investors were interested in the partnerships. At an LJM2 partnership meeting on October 26 2000, some details of which have been published by SmartMoney.com, a financial website, a 69 per cent internal rate of return was projected, assuming that a $120m credit from Chase Manhattan was fully drawn.

The prospectus, prepared by Merrill Lynch, explained that LJM2 limited partners would profit both from Enron's need to move assets off balance sheet, and from the expertise of Enron insiders, such as former chief financial officer Andrew Fastow and his colleagues who ran the partnership.

Enron needed the partnerships, according to the prospectus, because it was itself accelerating its search for investment opportunities. Such new areas, LJM2 documents explained, "often do not generate cash flow or earnings in the first several years".

"By bringing in co-investors or by disposing of portions of investments, Enron can finance substantial growth and make investments while maintaining its investment grade credit rating, meeting current earnings expectations, and retaining desired financial and operating involvement in its investments," they said.

Exactly how Mr Fastow, who was paid $30m for managing LJM, and his Enron colleagues reconciled the apparent contradiction between the low earnings such assets would yield for Enron, and the high returns they promised to LJM investors is not clear. But they told potential investors they would boost returns with a combination of financial engineering - "innovative transaction structures", as the prospectus puts it - and rapid deal-making.

The deals the partnerships carried out were sometimes of baffling complexity. By the October 2000 partnership meeting, all but 11 per cent of LJM2 transactions were with Enron affiliates.

The existence of Enron and Enron-created SPEs as both buyers and sellers in many transactions raises questions about the validity of these exchanges and the prices at which they were struck. But observers say the reason for the circular transactions was obvious. "The deals don't make sense - but they're done for the same reason people do these things all the time," says Prof Verrecchia. "To manipulate earnings."

*** From the outset, the LJM partnerships were barely visible to Enron shareholders. But Enron directors and advisers were well aware of their existence. According to an internal report prepared for the Enron board last year by Vinson & Elkins, a Texas law firm, LJM2 was approved by the finance committee of the board at a meeting on October 11 1999, which also reviewed Enron's activities with LJM1.

A day later, the full board took the crucial step to "waive Enron's code of ethics" to let Mr Fastow run the two LJM partnerships. Again, Enron shareholders received only the faintest indication. The 1999 annual report said that "a senior officer of Enron" - Mr Fastow, it later turned out - was the managing member of LJM's general partnership.

At the meeting about a year later, partners were told that one of LJM2's investments - Raptor I-would pose a "major risk to LJM" if Enron stock fell below $48 within six months. They were also told that the main risk in a proposed LJM investment in The New Power Company (TNPC), an energy group formed by Enron and listed last year, was a fall in its share price. A third, Osprey, posed a risk if Enron shares dropped below $47.

By June 2001, both of the nightmares outlined to LJM partners by Mr Fastow the previous October had come true. Shares of TNPC had plummeted and Enron's stock was also sliding.

According to public filings, a decline in Enron's shares below $48.55 would also trigger the distribution of extra Enron stock to Whitewing, another off-balance-sheet vehicle indirectly linked to LJM through Osprey. The stock fell through the mark on June 14 2001, rallied slightly on June 29, and definitively broke down on July 20.

On July 31, with the partnership structure now under more intense scrutiny on Wall Street, Mr Fastow stepped down as manager of the LJM general partnership. On August 14, Mr Skilling quit as Enron chief executive, a press statement quoting him as saying he was "resigning for personal reasons". His only other public comment, in The Wall Street Journal the day after, indicated that he left because Enron's share price had tumbled more than 50 per cent in the year.

James Chanos, a short-seller and president of Kynikos Associates, a hedge fund that had been studying the partnerships, says it was at that point "we started to realise that there was this so-called toxic cycle that could start . . . The partnerships would be technically insolvent, they would call upon Enron to make good, the Street would get wind of that, the stock would go down".

Many within Enron had also begun to worry. Jeffrey McMahon, treasurer, had complained to Mr Skilling about the conflicts. Sherron Watkins, a vice-president of Enron Global Finance, had also spotted the underlying flaws. So had Cliff Baxter, the former Enron vice-chairman who last week committed suicide.

Ms Watkins wrote to Kenneth Lay, then chairman and chief executive, on August 15 2001, the day after Mr Skilling's departure. "Raptor looks to be a big bet," she wrote. "If the underlying stocks did well, then no-one would be the wiser. If Enron stock did well, the stock issuance to these entities would decline and the transactions would be less noticeable. All has gone against us."

In October, as Ms Watkins feared, Enron was forced to reduce shareholder equity by

$1.2bn to reflect the liquidation of Raptor and the repayment the $1.2bn in notes Raptor had issued to Enron in exchange for Enron stock.

In response to Ms Watkins' concerns, Vinson & Elkins conducted a review. It concluded that the principal problem was "potential bad cosmetics", but made clear that the mood at Enron headquarters, where some staff worked for both the company and LJM, had deteriorated.

"Within Enron, there appeared to be an air of secrecy regarding the LJM partnerships and suspicion that those Enron employees acting for LJM were receiving special or additional compensation," said the report.

The triggers programmed into Enron's network of SPEs included those that finally doomed the energy group to bankruptcy.

For example, according to LJM2's financial statements for the nine months to September 30 last year, the partnership held a majority stake in Rawhide Investors, another off-balance-sheet vehicle. It was notes issued by Rawhide, in a financing organised by Citigroup, that suddenly came due in November, after Standard & Poor's downgraded Enron's debt to one notch above junk. Enron's shock declaration, in a regulatory filing on November 19, that it would have to repay $690m of notes by November 27 delivered a body blow to the rescue bid for Enron mounted by rival Dynegy.

Dynegy executives claim some Enron officials were apparently unaware of the extent of Enron's off-balance-sheet debt, now estimated at $40bn. According to one person close to the deal: "Dynegy management said 'this thing is getting so dicey we run the risk of tying ourselves to the Titanic and going down'".

But when Enron finally disclosed the extent of its plight, in the November 19 filing, it also unveiled the fatal weakness built into its structure over the preceding two to three years of earnings manipulation.