Wesley Colwell, the former head accountant of Enron’s North American trading
business, has testifed that he was forced to raid the energy company’s reserve
funds to inflate earnings.
Testifying at the Houston trial of former CEOs Jeff Skilling and Ken Lay,
Colwell said he was ordered to tap into cash reserves to inflate earnings as
part of Skilling’s efforts to impress Wall Street analysts.
During his testimony, Colwell alleged that former chief accountant Richard
Causey instructed him, in July 2000, on two occassions, to dip into a reserve of
$70m (£40m) to boost earnings per share by 2 cents to 34 cents per share,
beating financial analysts’ forecasts by 2 cents for the quarter.
The money had been set aside to pay for an electricity deal with the
Tennessee Valley Authority.
Such an action violates accounting rules that govern how companies report on
cash set aside to cover expected costs and liabilities, according to reports
from the US.
Colwell paid $500,000 (£287,400) in 2003 to settle a civil case brought
against him by the US Securities and Exchange Commission. He has not been
charged with a crime, and is cooperating with the government under a deal that
allows him to be avoid prosecution.
Causey reached a plea deal with prosecutors in December last year that is
expected to send him to prison for seven years.
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