Enron's Assets May Have Been Overstated by $24 Billion
The New York Times
April 23, 2002
THE FINANCES
By DAVID BARBOZA
HOUSTON, April 22 - The Enron
Corporation said today that the
value of its assets might have been
overstated by as much as $24 billion
because of accounting errors and the
effects of its Chapter 11 bankruptcy
filing last December.
The company, which disclosed the
information in a filing with the Securities and Exchange Commission, also said that its
financial statements going back to 1997 should not be relied upon because of doubts
about their accuracy.
Last November, the last time Enron filed a quarterly profit statement, it listed assets of
about $62 billion. Now, after one of the largest bankruptcy-protection filings in
corporate history and a number of federal investigations into potential financial and
accounting fraud at the company, Enron is putting the value of its assets closer to $38
billion. It is also offering further evidence that the way its finances were managed and
reported in recent years was questionable or erroneous.
Enron, which is largely under new management, offered few details today about the
current value of its assets. Some of the write-down in the value of its assets came
about with the Chapter 11 filing, the company said in the filing. But a significant part
of the write-down was because of "possible accounting errors or irregularities," it said.
The write-down will almost certainly mean that Enron
stockholders - who once held stock valued at about $90 a
share - will receive nothing out of the bankruptcy case.
Secured debtholders and other creditors have priority, and
Enron seems to be worth a little less every day.
Shares of Enron closed at 24 cents in over-the-counter
trading today, up half a cent. Enron said in its filing today
that the stock was virtually worthless and that shareholders
would not receive any interest in the reorganized company.
Bankruptcy and securities law experts said the Enron filing
was unusual because the company had abandoned the idea
of trying to figure out what happened last year. Enron said
today that it did not intend to file any financial statements
for 2001 and that the company had not retained an auditor to
replace Arthur Andersen. But some bankruptcy experts say
that companies that file for Chapter 11 often end up with
their books in disarray.
"When companies get into financial difficulty, record-keeping
is one of the first things to go," said Lynn LoPucki, a
professor of law at the University of California at Los
Angeles. "Sometimes it's intentional, and sometimes it's just
difficult to keep track of things."
In Enron's case, the company that is struggling to emerge
from bankruptcy protection under Stephen F. Cooper, the
acting chief executive and a corporate restructuring
specialist, is also trying to distance itself from the financial
and accounting quagmire that unfolded last year. Enron
officials want a new start for a company that would be much
smaller and rely on pipelines and utilities.
"We are disclosing what information we know today in an
effort to restore financial credibility," said Mark Palmer, an
Enron spokesman. "We want to get the issues of the past
behind this company as we meet with creditors on a global
plan for moving forward."
Enron had intended to restate its financial statements going back to 1997, but the
company said today that that was nearly impossible because of the bankruptcy case, a
number of lawsuits and a rash of federal investigations.
If such a review was undertaken, though, the company estimated that the value of its
assets would have to be sliced by at least $14 billion. Enron also said there could be a
write-down of an additional $8 billion to $10 billion related to hedges on its trading
activities.
Widespread reports, from federal investigators, former Enron employees and analysts,
have said that Enron inflated revenue, profit and even assets as it sold investors on a
magnificent growth story in the late 1990's. Some securities experts think the
company's ability to book long-term trading profits may have been part of a game that
masked a less rosy financial picture.
"Some of this could be derivatives positions that were mismarked," said Henry Hu, a
professor of corporate and securities law at the University of Texas at Austin. "That
was one of the easiest things to do to inflate your assets."
Enron warned in its filing, though, that the estimates had not been reviewed by an
independent auditor and had not been checked with former Enron executives or
Andersen, the company's former auditor.
Stephen Blauner, a spokesman for Milbank Tweed Hadley & McCloy, the primary law
firm representing Enron's creditors, declined comment on the filing.
Andrew Entwistle, a lawyer who represents one creditor, the Florida State Pension
Fund, said the filing was further proof that Enron executives could not have acted
alone.
"It would be absolutely impossible to perpetrate a fraud of this magnitude without the
assistance of analysts, lawyers and accountants," he said, referring to some creditors'
efforts to go after a broad range of others for liability in the Enron collapse.
The underlying theme of the filing, though, was that stockholders would not share in
any assets that are left over because Enron's books did not carry what people thought
they carried.
"The message is: there will be nothing left after everyone is paid," Bala Dharan, a
professor of accounting at Rice University in Houston, said, referring to stockholders.
"It conveys something that was expected in a very firm way: `Don't expect anything out
of this case. We are really bankrupt.' "
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