Last Chance To See 600 sq mi: Hidden
Missed Connections: Gefilte Fish...and "Chain Connections"
H-Town Rock
Rock Talk, Vol. IX
Two witnesses in the Ken Lay/Jeff Skilling trial Monday testified that the failing company often scrambled to find money to help it meet its earnings forecasts — once even stumbling across millions of dollars in a box. If only Houstonist had such luck.
Wesley Colwell, the former head accountant in Enron's trading division, told prosecutors that he twice withdrew millions of dollars in money held in reserve for future needs so the company could meet earnings reports in what he called "backwards engineering." In other words, the earnings numbers would be set and then Colwell would be told to find a way to make the company match them:
In response to questions from prosecutor Sean Berkowitz Colwell said that twice in the second quarter of 2000 he was asked to increase earnings by $7 million. He said he raided $70 million set aside to make up for a soon-to-be-dissolved contract with the Tennessee Valley Authority. The $14 million total allowed Enron to boost its announcement from 32 cents earnings per share to the target 34 cents.On cross-examination Colwell agreed with Skilling lawyer Randy Oppenheimer that the $14 million was not big in Enron's world.
"Fourteen million is not material to Enron," he said. But, Colwell said, "an investor would want to know that we were selecting an earnings number and moving reserves."
Colwell raided the reserves again in the fourth quarter of 2000 so the company could meet its announced 41 cents per share earnings report. Though Colwell said he was told it was ex-CEO Jeff Skilling's "preference" that money be moved to make earnings seem larger, Colwell said he never spoke to Skilling directly about the practice. Though Oppenheimer tried to get Colwell to say that releasing reserved money to earnings wasn't wrong, Colwell held his ground, saying it was a crime to set earnings numbers and then take money out of reserves for no other reason than to meet the earnings reports.
But the best story Monday came from Wanda Curry, who was pushed out of the top accounting job in the trading division because she "was not capable of making aggressive accounting decisions." Colwell took her place. Curry said in the spring of 2000, she was assigned to do a risk assessment of Enron Energy Services to "stop the bleeding" in the division. When she began looking at EES contracts, she found something surprising: Under a trader's desk was a box full of millions of dollars in uncashed checks, payments from a Southern California utility. In total, that utility and others owed Enron about $511 million and the division had another $595 million in possible losses, Curry said. She said she believed Enron moved the risk portion of EES into the trading division, which was profitable, early in 2000 to hide the problems at EES. Skilling lawyer Ron Woods attempted to get Curry to agree that moving the risk section of one division to another was just an efficiency move, but Curry maintained that the move was made to hide losses.
Woods' cross-examination of Curry is expected to continue today. The next witness might be Enron trader Timothy Belden or a victim of of the company's collapse; up soon on the witness stand will be former retail division head David Delainey.
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