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Enron witness says he plundered reserves Original Source Link: (May no longer be active)    http://abcnews.go.com/Business/wireStory?id=1667397 http://abcnews.go.com/Business/wireStory?id=1667397 Enron Witness Says He Plundered Reserves Former Top Enron Trading Accountant Says He Plundered Reserves to Boost Earnings By KRISTEN HAYS The Associated Press HOUSTON Feb 27, 2006 (AP)— HOUSTON - The former top accountant for Enron Corp.'s profitable trading division said Monday that he improperly raided reserves to increase earnings in mid-2000 when he got word that former Chief Executive Jeffrey Skilling and other superiors wanted results that would wow Wall Street. Wesley H. Colwell kicked off the fifth week of the fraud and conspiracy trial of Skilling and Enron founder Kenneth Lay, telling jurors he helped the company fraudulently manipulate earnings to meet or beat analysts' expectations by dipping into reserves when Enron needed an income boost that business operations didn't provide. Colwell didn't say Skilling ordered him to plunder reserves to boost earnings. He said, however, that he e-mailed his boss then-Enron North America chief executive David Delainey days before Enron released second-quarter 2000 earnings to say he understood from then top Enron accountant Rick Causey that it was Skilling's "preference" to surpass expectations. Twice within a five-day stretch between the close of the second quarter in 2000 and Enron's announcement of earnings, Colwell reduced reserves by $7 million. The total $14 million was added to reported income so Enron could announce earnings-per-share of 34 cents rather than the 32 cents Wall Street expected, making the company appear more successful than it was. "Did you use reserve accounts at Enron North America to fraudulently manipulate Enron's reported earnings?" prosecutor Sean Berkowitz asked. "Yes," Colwell replied. Skilling lawyer Randall Oppenheimer tried to establish that reserve accounts are part of normal operations to protect companies against losses or liabilities. He also noted that amounts of those reserves fluctuated with efforts to keep adequate financial cushions. Colwell agreed that it was proper to establish such reserves, but stood his ground that raiding them to pump up earnings was not. When Oppenheimer asked if Colwell opposed the timing of the reserves reduction, Colwell responded, "No, the timing in my mind was not an issue with the changes, it was the way." Colwell conceded that no one told him to do anything improper with a reserve account, nor did he voice concern that his action was wrong. "You never said, 'Gee, I don't want to do this?'" Oppenheimer asked. "I did not say that, you're right," Colwell replied. Other witnesses have testified that Skilling either ordered or had authority to order the last-minute increase in reported earnings-per-share in the second quarter of 2000. Lay's lawyers had yet to question Colwell. Prosecutors contend Lay and Skilling repeatedly lied about Enron's financial health while knowing fraudulent accounting propped up the company before it crashed into bankruptcy proceedings in December 2001. The defendants say there was no fraud at Enron, and negative publicity coupled with diminishing market confidence fueled the company's swift collapse. Colwell, 46, testified as part of an immunity deal he obtained from prosecutors. In October 2003 he paid half a million dollars to settle Securities and Exchange Commission civil allegations of manipulating Enron's earnings, but has not been charged with a crime. "If I tell the truth and don't withhold any information, I will not be prosecuted for my crimes while at Enron," Colwell told jurors Monday when explaining his deal. The SEC complaint alleged Colwell and others improperly set aside higher-than-expected trading profit to report in future quarters so Enron would appear to be a stable, growing company rather than one vulnerable to market volatility. In addition to paying a fine to settle the SEC allegations, Colwell lost his CPA license and is barred from being an officer in a publicly traded company. He is not a felon. Skilling faces 31 counts of fraud, conspiracy, insider trading and lying to auditors, while Lay faces seven counts of fraud and conspiracy. If convicted, both face decades in prison. Only Skilling faces allegations of improper stock sales. Copyright 2006 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed. Copyright © 2006 ABC News Internet Ventures

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