Sun, Dec 29, 2002 - Page 11 News List

Enron's hard assets may have been undervalued

DOUBLE TROUBLE The investigation into whether Enron was carrying assets on its books at inflated values developed as a result of actions taken by the firm's new managers


Broadening the inquiry into Enron's collapse, federal investigators who have been examining the esoteric details of off-the-books partnership schemes are now looking at such basics as whether the company misled investors about the value of hard assets like pipelines and power plants, according to people involved in the case.

The new inquiry represents a focus on the sort of run-of-the-mill accounting issues that have been raised in numerous corporate fraud cases in the past. Under examination, these people said, is whether Enron carried assets on its books for billions of dollars more than their actual worth.

One person involved in the case described this avenue of investigation as an effort by federal officials to determine whether Enron had "a WorldCom problem." Prosecutors have charged executives of WorldCom, the telecommunications giant that joined Enron in bankruptcy court earlier this year, with shifting expenses around on its books in an effort to mislead investors about the company's financial health.

A year after Enron's collapse, investigators are engaged in what has become a virtual post mortem of the company's business dealings and its possible transgressions of criminal law. Investigators are examining accusations of self-dealing and accounting fraud, securities fraud involving the company's broadband unit, energy market abuses and insider trading.

The investigation is now reaching what people involved in the case describe as an important turning point. In the next few weeks, they said, federal prosecutors plan to bring what is known as a superseding indictment against Andrew S. Fastow, the company's former chief financial officer, who was charged earlier this year in a 78-count indictment.

The superseding indictment will add charges, name new defendants, or both, according to these people. Prosecutors are expected to settle on a course of action soon, they said.

The investigation's new direction, if it proves fruitful, could offer prosecutors not only a case that is easier for a jury to understand, but also another means for pursuing evidence of possible criminal activities up the management ranks at Enron.

In indicting Fastow, prosecutors outlined the role they believe was played by the company's former chief accounting officer, Richard A. Causey, in improper activities involving one off-the-books partnership. Any evidence that they now develop of improper accounting decisions might allow prosecutors to exert greater pressure on Causey to strike a deal.

But people involved in the case said Causey had not signaled a willingness to plead guilty to any charges. Reid Weingarten, a lawyer for Causey, declined to comment.

Investigators have centered their attention on four areas: accounting and partnership issues like those involving Fastow; Enron's energy trading activities; possible insider trading by Enron's former chairman and chief executive, Kenneth Lay; and possible misrepresentations of the financial prospects of Enron's broadband division.

The first area has already resulted in two guilty pleas, as well as the filing of charges against Fastow. The trading investigation, involving charges that the company manipulated the California energy market during the state's power crisis, has also resulted in a guilty plea, from a former top trader.

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