SEC steps up probe of Enron finances

Energy-trading firm may have overvalued assets by $24 billion

May 13, 2002|By NEW YORK TIMES NEWS SERVICE

HOUSTON -- The Securities and Exchange Commission is stepping up its investigation of Enron Corp. by questioning the company about its recent disclosure that it may have overstated the value of its assets by up to $24 billion in the last year, company executives said.

The SEC appears to be concentrating on how the company valued everything from its trading activities to its hard assets such as investments in power plants and fiber-optic networks, said the executives, who have been briefed on the investigation.

The SEC has been examining Enron's financial reporting over the past few years, when it was led by former executives Kenneth L. Lay, Jeffrey K. Skilling and Andrew S. Fastow.

Enron officials said April 22 that the company might have to greatly reduce the stated value of its assets, partly because of old "accounting errors." The company also said that financial statements dating to 1997 could not be relied upon. Those disclosures may open new avenues of investigation and offer new transactions to explore as the SEC seeks to build a case of accounting fraud against the company.

The SEC recently questioned Raymond M. Bowen Jr., chief financial officer at Enron, about the recent disclosure of the possible correction in the value of Enron's assets, several executives said. Other company officials here have also been informed of the inquiry.

SEC investigators are trying to determine how and when the assets whose stated value is expected to be cut were placed on the balance sheet. Regulators are also looking into whether their value was artificially inflated and what executives were involved in those decisions.

Officials at the SEC could not be reached during the weekend. Mark A. Palmer, a spokesman at Enron, declined to comment on this latest SEC inquiry. But he said the company continues to cooperate with a number of federal investigations.

Last month, when Enron announced the overstatement, the company did not disclose which assets were involved in that reassessment.

The company blamed accounting errors and the effects of the Chapter 11 bankruptcy protection filing in December for the decline in value. But the company said that because of doubts about its financial statements dating to 1997, and confusion about what took place in the past year, it would not even attempt to file a financial report for last year.

In October, the last time Enron filed a quarterly report, it listed assets of about $62 billion. Now, after one of the largest bankruptcies in corporate history, Enron is putting the value of its assets closer to $38 billion and offering further evidence that the way it managed and reported its finances in recent years was questionable or erroneous.

Exactly how Enron determined which assets were overstated is unclear. The company cautioned at the time of its disclosure last month that it reached its findings without the participation of an independent auditor. The company also said that it had not contacted former Enron executives or Arthur Andersen officials to ask for explanations about the stated value of some of those assets.

Indeed, Enron has not appointed an auditor to replace Arthur Andersen. Andersen is on trial in federal court here on a single count of obstruction of justice because of allegations that the firm illegally destroyed Enron-related documents.

Enron, which is largely under new management, is seeking to emerge from bankruptcy protection by attempting to preserve a portion of the company as an old-line energy firm centered on pipelines and power plants. The activities of the new Enron management team, led by Stephen F. Cooper, interim chief executive and the chief restructuring officer, are not believed to be a target of the SEC probe. Regulators are focusing on actions that took place before Cooper was appointed in January.

The disclosure in April that Enron expected to greatly reduce the reported value of its assets nearly removes the slight chance that stockholders -- whose shares were once worth about $90 each -- would get anything out of the bankruptcy case. Banks and bondholders secured by Enron property and other creditors have higher priority.

In October, the SEC began a formal inquiry into Enron and some of its partnerships off the balance sheet. The announcement of that inquiry was one of the events that precipitated the company's collapse and eventual filing for bankruptcy protection Dec. 2.

Bala Dharan, a professor of management at Rice University who has studied Enron's reports, said the company's third-quarter filing last year raises lots of questions because assets simply labeled "other" represent billions of dollars.

"It's unusual for these types of unlabeled assets going into the billions," he said. "Often, it's in the millions. These are things the SEC is going to ask about."

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