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Non-Tech : The Enron Scandal - Unmoderated -- Ignore unavailable to you. Want to Upgrade?

To: Glenn Petersen who wrote (2791)	10/10/2003 7:21:59 AM
From: Glenn Petersen	Respond to of 3602

Ex-Enron Accountant To Settle Colwell Said to Be Aiding Criminal Probe washingtonpost.com By Peter Behr and Carrie Johnson Washington Post Staff Writers Friday, October 10, 2003; Page E01 A former senior accountant at Enron Corp. has agreed to pay a $500,000 fine to settle government charges that he and other executives fraudulently manipulated the Houston company's earnings, shifting energy-trading profits in California and other states to hide more than $1 billion in losses in 2000 and 2001. The Securities and Exchange Commission said yesterday that Wesley H. Colwell, who had been the chief accounting officer of Enron North America, the company's energy-trading arm, is cooperating with the Justice Department's criminal investigation of Enron's December 2001 bankruptcy filing. Colwell was a close friend and colleague of Enron's top accountant, Richard A. Causey, and will become a pivotal witness in future cases if he has evidence that top executives knew about earnings manipulation, according to lawyers involved in the case. The SEC's complaint said that the trading profits were used to help hide $1 billion in losses at its retail energy unit in the first six months of 2001 -- a period when Enron's declining stock price threatened a financial crisis at the onset of Jeffrey K. Skilling's tenure as chief executive. Neither Skilling nor his predecessor, Enron founder Kenneth L. Lay, has been charged in the investigation. Attorneys for Skilling, Lay and Causey have said their clients broke no laws at Enron. Colwell, who went to work for Causey at Enron in 1999 after more than 17 years with Enron's chief accounting firm, Arthur Andersen, agreed to settle the SEC charges without admitting or denying guilt. "The question is: How much did he talk to Ken Lay or Skilling?" said Houston lawyer David H. Berg. "That company was fairly compartmentalized. He may cooperate, but it may not reach the levels they [the prosecutors] want." Berg said it is unusual for the government to permit a potential witness like Colwell to settle without admitting the truth of the charges in the complaint. While the government has alleged earnings manipulation in other actions against Enron, the transactions cited in yesterday's SEC action would have been instrumental in Enron's efforts to meet Wall Street earnings targets. Senior company executives regularly saw updated reports of energy-trading balances, and the transfers of funds alleged in the Colwell complaint would have jumped off the page, one person close to the inquiry said. The SEC's complaint alleged that more than $400 million in power-trading profits, earned during the California energy crisis in 2000, were improperly channeled into a reserve account on the company's books known as Schedule C. In 2000 and 2001, some of these funds were tapped to make up for losses in its retail energy-marketing operation, Enron Energy Services, the SEC said. Thomas E. White, secretary of the Army from May 2001 until April 2003, was vice chairman of EES during part of that period. He has denied knowing anything about huge losses some employees claimed the division was taking during his tenure. Frank Partnoy, a University of San Diego law professor who testified to Congress last year about the transfers, said that the funds were in large part accounting profits based on Enron's calculations of its returns from long-term contracts to deliver electricity in California and other states. Enron did not want to show windfall profits from its California trades at a time of skyrocketing prices and blackouts in the state. So it hid the earnings and added them to its financial reports in later quarters, to offset heavy losses in other operations, he said. It is not clear how much of the funds cited in the SEC complaint were cash receipts from energy sales and how much were Enron's estimates of what its long-term energy contracts might be worth -- a practice called mark-to-market accounting that was central to the surging growth the company reported before its collapse. According to the SEC, Colwell and other unnamed executives also fraudulently inflated the value of Enron's holdings in its largest energy-exploration asset, Mariner Energy Inc., adding $100 million in fictitious earnings to fourth-quarter 2000 results. And in the second quarter of 2001, Colwell and others hid a $1.4 billion drop in the value of its Houston Pipeline Co. subsidiary through a bogus lease arrangement, the SEC charged. Federal prosecutors have previously indicted former Enron chief financial officer Andew S. Fastow, and Fastow's top deputy, former treasurer Ben F. Glisan Jr., pleaded guilty last month to charges of conspiracy to commit securities fraud. He has begun a five-year prison term. In Enron's highly compartmentalized executive ranks, Fastow's financial team and the company's accounting side often handled different transactions. Colwell is the first senior accounting official known to be cooperating with the government. © 2003 The Washington Post Company