$7.9 Billion "error"...oops, so sorry.
Reliant owns up to $7.9bn accounts
error
By Edward Simpkins (Filed: 07/07/2002)
Reliant Resources, the $2.5bn Houston-based
energy trading and generating company with offices
in London, admitted late on Friday that it has
artificially inflated its revenues by more than $7.9bn
over the past three years.
The company filed restated accounts with the
Securities and Exchange Commission in response to
"certain investigations, litigation and governmental
proceedings".
The submission shows energy trades during 1999,
2000 and 2001 added $6.4bn to the company's
income during those years. The deals are so called
"round-trip" trades where the same amount of
energy is bought and sold for the same price in
order to increase trading volumes.
As well as the round-trip trades the company added
another $1.5bn to its income because of the way it
accounted for four other energy contracts which
Reliant describes as "swaps".
It said these deals were legitimate and were
expected to increase future cash flows. However, it
has banned its staff from further round-trip trading.
The filing said: "The personnel who effected these
transactions apparently did so with the sole
objective of increasing volumes."
In May, the company claimed that it had not been
involved in Enron-style dealing. "Reliant denies that
the company engaged in trading practices
comparable to the practices detailed in the Enron
memos," the company told investigators.
Earlier that month the company cancelled a $500m
debt placing and admitted the round trip trades. The
announcement wiped a further 25 per cent off its
already battered share price which closed on Friday
at $8.68, down from $37 last year.
Its latest filing admits that the company is now
involved in "numerous" lawsuits and regulatory
proceedings relating to its trading activities, mainly
regarding its same-day purchases and sales with
the same counterparty for the same price and
volume of energy.
However, it is also being investigated for other
transactions it inaccurately accounted for and its
"activities in the California wholesale market".
In June the SEC issued a formal order to the
company saying it was investigating its financial
reporting and internal controls.
The Commodity Futures Trading Commission has
also subpoenaed documents and requested
information on Reliant's natural gas and power
trading while the Federal Energy Regulatory
Commission has asked for co-operation into its
inquiry into energy price manipulation in California.
In May and June this year 10 class action lawsuits
were filed on behalf of investors in Reliant Resources
and its parent Reliant Energy and a further law suit
was filed last week. As well as the company and its
directors, the banks that underwrote its IPO last
year are named as defendants as are their auditors.
Last month Steve Letbetter, the chairman and chief
executive of Reliant Resources, gave an upbeat
statement to analysts.
He said: "The most fundamental fact, the most
important fact is that our underlying business is
strong," he said.
He added that he is shortly expecting SEC approval
to spin the company out of Reliant Energy. |
