The federal investigation into Enron Corp.’s numerous special purpose entities (SPE) has stumbled upon the question of whether investors also were misled about the value of the company’s natural gas pipelines and power plants, according to a report in The New York Times Thursday.

According to reports, investigators question whether Enron knowingly was carrying assets on its books at inflated prices, a question which first was raised by new managers put in place after the company filed for bankruptcy protection.

In a statement to the bankruptcy court last April, management reported that the value of assets on Enron’s balance sheet would have to be reduced by about $14 billion, resulting from a loss in value following the bankruptcy filing.

However, the statement indicated there also were potential problems with “valuations of several assets, the historical carrying value of which current management believes may have been overstated due to possible accounting errors or irregularities.” Enron’s statement to the U.S. Bankruptcy Court did not identify the assets, but according to the Times, witnesses have told government investigators that primarily three Enron holdings are involved, with Houston Pipe Line (HPL) the largest.

HPL, which is estimated to be worth about $800 million, was carried on Enron’s books at a value of more than $4 billion — the value assigned to it when Enron was created through the purchase of Houston Natural Gas by InterNorth. InterNorth/Enron paid several billion dollars more than the total book value and chose to increase the valuation under a “fair value adjustment” under accounting rules.

Former executives apparently have told investigators that Enron argued that HPL would be “extremely valuable in the future, when it could be used as a hub in a nationwide pipeline system.” However, Enron subsequently sold off parts of the system, and “since no acquirer was willing to pay the value that had been assigned to the system, accounting rules normally would have required Enron to record a loss on those sales.”

To avoid the loss, Enron apparently moved billions of dollars in fair value adjustment from HPL onto a storage area associated with the system. Enron never restated the assets’ value, according to sources, and “the exaggerated value represented several billion dollars worth of the $14 billion write-down that Enron’s new management said would be appropriate.”

At least two other assets also were carried at “inappropriate values,” including a cogeneration plant and a deepwater drilling project, the Times reported. For example, the Mariner drilling project was 97% owned by Enron, and sources have indicated that the new management said its value should have been written down by $300 million to $400 million.

Ultimately, investigators are trying to determine first whether the new management’s assessments are correct, and former employees are being questioned to learn whether Enron’s management knowingly carried the assets at inflated values to avoid write-downs.

An unnamed source told the Times that investigators have reached “an important turning point,” focused on whether Enron had a “WorldCom problem,” meaning it moved expenses around on its books to mislead investors about the actual financial health of the company.

According to the report, investigators are hoping to be able to issue a “superseding” indictment against former CFO Andrew S. Fastow, who already has been charged in a 78-count indictment. If the investigation proves fruitful, sources said that prosecutors would have an easier case to present to a jury, as well as enabling evidence of possible criminal activities of upper management.

When Fastow was indicted in a Houston courtroom earlier this year, prosecutors outlined a possible role played by Richard A. Causey, the former chief accounting officer, for improper activities involving one of the SPEs. Any evidence found now of possible improper accounting decisions could put more pressure on Causey to cooperate, sources said. So far, Causey has not indicated he is willing to plead guilty to any charges.

Since Enron’s collapse last year, investigators have pursued four areas for possible criminal activity at the company: accounting and partnership issues; energy trading activities; possible insider trading by former CEO Kenneth L. Lay; and possible misrepresentations of the company’s broadband division.

Within the broadband division, investigators are examining statements made by the company between 1999 and 2001, which insisted the division was going to become the backbone of future growth at Enron. In recent weeks, the Federal Bureau of Investigation has arrived “unannounced at the homes of some broadband executives, confronting them with what the agents said was potential evidence of fraud,” according to the Times.

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