Dynegy Inc. last week said it would “vigorously contest” allegations by a former executive that he was fired for refusing to manipulate the company’s profits and losses in the third quarter of 2000. Bradley Farnsworth, former controller, filed the lawsuit Friday, claiming COO Steve Bergstrom asked him to engage in illegal practices involving natural gas trades in the United Kingdom. The lawsuit does not allege that Dynegy actually manipulated the books, and apparently, Farnsworth does not know if Dynegy had done so.

After Farnsworth refused to take part in the alleged illegal accounting, the lawsuit contends that he was kept out of routine meetings on earnings, and was ultimately fired because “he wouldn’t play ball,” according to his attorney Philip Hilder. Hilder also did not answer questions as to whether his client talked with federal prosecutors or the Securities and Exchange Commission about investigations now under way involving Dynegy.

The lawsuit charges that Bergstrom asked Farnsworth, who was also a senior vice president, to “shave, or reduce for accounting purposes,” the model that Dynegy used to project gas prices. By reducing the model, Dynegy could reduce its losses, according to the lawsuit. If the accounting had been reduced, the amount would have been “significant,” said Hilder, but he did not offer any figures.

According to the lawsuit, Farnsworth was asked to manipulate transactions that would lead to losses outside of Dynegy’s acceptable risk limit. The long-term transactions, which were booked with mark-to-market accounting, used a model to predict the future value of the contracts. Under the original model, Dynegy’s losses would be substantial, and Farnsworth alleges he was ordered to change the model to make the losses appear smaller.

Farnsworth said he refused and then-CFO Rob Doty told Farnsworth that Bergstrom would not accept that decision because it would mean that the company probably would not meet its earnings target for the quarter. Farnsworth said he asked for and received another position at Dynegy in March 2001. He was fired seven months later. Dynegy reported a record quarter in the period, but reported a loss in its European marketing and trading unit.

“Mr. Farnsworth’s allegations are a disingenuous effort on the part of the plaintiff and his counsel to exploit Dynegy’s current circumstances for financial gain,” a spokesman said. Dynegy also noted that it was Farnsworth’s obligation to tell the chairman of the audit committee of the board of directors if he, as controller, had concerns about the propriety of the firm’s accounting, but Farnsworth had not done so. Also, Farnsworth also had a legal obligation to raise those questions before he signed the filing made to the SEC during the earnings period in question, Dynegy said.

Farnsworth, now a self-employed consultant, is seeking damages and what he said he is owed under his employment contract. Dynegy said Farnsworth had been paid in full, and as the company agreed under his severance contract.

Dynegy said it is reserving the right to file a countersuit if previously announced re-audits of the company’s financial statements from 1999 to 2001 find that “Mr. Farnsworth or those under his direction improperly reported the company’s financial statements.”

©Copyright 2002 Intelligence Press Inc. Allrights reserved. The preceding news report may not be republishedor redistributed, in whole or in part, in any form, without priorwritten consent of Intelligence Press, Inc.