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SEC Files New Charges In Enron Case

Oct 10, 2003 | USA TODAY

The Securities and Exchange Commission has opened a new front in the investigation of Enron, charging a former top executive of Enron North America with accounting fraud.

The SEC charges could ultimately lead to an Enron division that was headed by Lou Pai and Thomas White, who served as the Bush administration's secretary of the Army from May of 2001 until this April.

The SEC charges, filed Thursday in federal court in Houston, allege that former Enron North America chief accounting officer Wesley Colwell took some of the excessive profit earned from the electricity crunch in California three years ago and diverted it to another Enron division that was struggling.

By concealing its profit from its California trading, the SEC alleges, Enron was able to make it appear as though it was not gouging consumers in the Golden State during the year 2000.

The following year, the SEC says, Enron shifted the excess profit toward Enron Energy Services (EES), the company's highly touted retail operation that was having difficulty generating profit. Pai headed up EES until January of 2001; White was vice chairman until moving to Washington.

One executive spanned the two Enron divisions during the period described by the SEC: David Delainey, who was CEO of Enron North America in late 2000, took Pai's job in April of 2001.

Colwell, who neither admitted nor denied the charges, agreed to pay $500,000 in fines and cooperate with ongoing investigations by the SEC and the Justice Department.

Colwell's cooperation is significant, because it could increase the pressure on other senior Enron executives to cooperate, particularly with the Enron Task Force's criminal probe.

As the top accounting executive at Enron North America, Colwell reported directly to Rick Causey, Enron's chief accounting officer. In recent months, prosecutors are believed to have discussed the possibility of a deal with Causey, calling for him to plead guilty to certain charges and cooperate with the Enron probe in return for a lighter jail sentence. Until now, Causey has rebuffed such offers, but the active cooperation of one of his right-hand men could change the situation.

Causey's lawyer, Reid Weingarten, did not respond to requests for comment.

The SEC charges also include the first formal accusations that Enron arbitrarily inflated the value of its assets In the fourth quarter of 2000, Enron needed an additional $100 million to meet Wall Street's earnings expectations. It turned to an asset, Mariner Energy.

According to the court filing, "Colwell and others fraudulently increased the recorded value of Mariner by approximately $100 million. Colwell and others knew that Mariner's fourth-quarter 2000 valuation was an amount arbitrarily selected to generate fictitious mark-to-market earnings sufficient to meet Enron's targets."

According to Houston attorney Philip Hilder, the charges are "a precursor of what's to follow on the prosecution side."

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