Ex-Enron Exec Pleads Guilty; SEC Calls for End to Ken Lay's 'Charade'
David Delainey, the former CEO of Enron North America and Enron Energy Services, last week agreed to plead guilty in connection with criminal charges brought by the U.S. Department of Justice. Delainey, who apparently will cooperate in the continuing investigation, also settled Securities and Exchange Commission (SEC) allegations without admitting or denying any wrongdoing in manipulating his former company's earnings statements.
Under the guilty plea, Delainey agreed to forfeit nearly $4.26 million from money he made at Enron. According to the SEC, Delainey agreed to pay a fine of $3.74 million. He also will be barred from serving as an officer of a public company, the SEC said.
According to the civil charges, Delainey engaged in a "wide-ranging scheme to manipulate Enron's publicly reported earnings through a variety of devices designed to produce materially false and misleading financial results. The SEC also alleges that Delainey engaged in insider trading while at Enron, and "sold large amounts of Enron stock at inflated prices and reaped millions of dollars in profits."
Specifically, said the SEC, Delainey either took part in or knew about the manipulation of reserve accounts, concealment of uncollectable receivables, fraudulent asset valuations and other manipulative accounting devices. The SEC alleges that beginning in the first quarter of 2000 and continuing through 2001, Enron North America improperly reserved hundreds of millions of dollars of earnings to conceal volatility in its energy-trading profits and to use large amounts of those reserves to cover up other business unit losses.
"Enron and [Enron North America] senior commercial and accounting managers concealed the existence of these bad debts," the SEC said. In another instance, the SEC alleges that in late 1999, Enron entered into energy trade agreements with Merrill Lynch & Co. to sell and then repurchase energy generated from certain power plants, which allowed Enron to meet its year-end earnings targets.
On another front, the SEC attacked ex-Enron Chairman Kenneth Lay in federal court last week, claiming Lay had "demonstrated a frankly whimsical approach" toward constitutional protection against self-incrimination, and asked the court to put an end to "this charade" by compelling him to turn over 870 pages of documents it has requested for nearly two years.
Since February 2002 -- three months after Enron declared bankruptcy -- the SEC has requested certain documents from Lay, and many of them have been turned over to the commission. However, Lay's attorneys have argued that some of the documents requested are "personal" and not "corporate," and Lay has refused to comply, invoking his Fifth Amendment right against self-incrimination. In court documents, Lay's lawyers have argued that the documents in question are Lay's "thought process."
However, the SEC sued to obtain the documents in late September in U.S. District Court for the District of Columbia (03 1962). The SEC claims that Lay should be compelled to turn over the documents, in part because he has been inconsistent in invoking his Fifth Amendment rights. Initially, said the commission, Lay produced some documents without claiming his constitutional protection, but then later he asserted it. The SEC also said it was an "outrage" that Lay had produced some of the same records for Enron's bankruptcy examiner earlier this year while refusing to give the same documents to the commission.
According to the latest filing, Lay agrees that he "has no Fifth Amendment right to withhold corporate records" but will not give them to the SEC unless the commission agrees to distinguish which records are personal and which are corporate. The SEC said it will not agree to those conditions, stating, it is "not for the SEC to make the initial determination that records held by Lay are corporate or personal."
SEC lawyers Luis Mejia and David Bloch wrote in a filing that "Lay's continued refusal to designate and produce corporate records to the SEC, unless the SEC 'agrees' to his terms, is an outrage and belies his self-serving and disingenuous claim that he is fully cooperative with the SEC."
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