Wesley Colwell, once a chief accountant for Enron Corp. trading unit Enron North America, testified on Monday at the trial of Kenneth Lay and Jeffrey Skilling that he, too, finagled the financials.
The prosecution’s first witness of the day, Colwell testified that in mid-2000, when he learned that Skilling and Enron executives wanted to impress Wall Street, he improperly tapped a $70 million reserve in order to boost the company’s earnings, according to the Associated Press.
Colwell reportedly stated that Skilling did not explicitly order him to manipulate earnings. However, wrote the AP, he told jurors that he emailed Enron North America chief executive officer David Delainey shortly before Enron reported second-quarter 2000 earnings. In his email, Colwell testified, he stated his understanding from Enron chief accounting officer Richard Causey that it was Skilling’s “preference” to exceed expectations.
According to Colwell, within a five-day period between the close of the second quarter of 2000 and Enron’s earnings announcement, he dipped into the reserve twice, for $7 million each time. A total of about $10.5 million (after taxes, according to the Houston Chronicle) was added to Enron’s earnings, enabling the company to beat Wall Street estimates by 2 cents per share.
Asked by prosecutor Sean Berkowitz if the reported earnings accurately reflected Enron’s performance, Colwell reportedly replied, “The releases had no economic substance to them.” As for who ordered the release of funds from the reserve, wrote the Chronicle, Colwell said, “I understood that to be Jeff Skilling.”
On cross-examination, Skilling attorney Randall Oppenheimer took the tack that reserve accounts are part of normal operations to protect companies against losses or liabilities, according to the AP. Oppenheimer also maintained that the reserves fluctuated so that companies could maintain adequate financial cushions.
Colwell reportedly agreed that it was proper to establish these reserves but asserted that raiding reserves to boost earnings was improper. The former executive did concede, however, that at the time, he never told anyone that he believed he might be doing something wrong, the AP noted.
In October 2003, Colwell agreed to pay $500,000 to settle civil charges with the Securities and Exchange Commission that he manipulated Enron’s earnings. According to the wire service, he received immunity for testifying and was not criminally charged.
Colwell was followed on the stand by Wanda Curry, who had been an Enron employee for two decades before serving four months as Colwell’s predecessor, reported the Chronicle. Why the short stint? asked prosecutor Kathryn Ruemmler. ”I was told I was being replaced as chief accounting officer of Enron North America,” Curry reportedly replied, “because I was not capable of making aggressive accounting decisions.”
Curry told jurors that she got the word from former Enron vice chairman Cliff Baxter, who committed suicide after Enron’s collapse. Curry asserted that she lost the job, added the Chronicle, after demanding that a 1999 electricity trading deal with Merrill Lynch be restructured to transfer risk. Judge Sim Lake reportedly did not allow prosecutors to press for details.