SOP at Enron: ”Fast and Loose”

David Delainey, former CEO of Enron North America, says Skilling misrepresented his trading division because ''the investment community does not pay significant multiples for significant trading revenues, especially speculative trading revenues.''


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Three former executives of Enron Corp. division Enron North America — chief accounting officer Wanda Curry, chief trader Timothy Belden, and CEO David Delainey — took the witness stand Tuesday at the trial of Kenneth Lay and Jeffrey Skilling.

Curry concluded her testimony — tearfully, in tears, according to the Associated Press — telling jurors, “I felt I was being discriminated against because of my morals and ethics.”

On Monday she recalled being told that she was removed as chief accountant “because I was not capable of making aggressive accounting decisions.” Under cross-examination by Skilling attorney Ron Woods, Curry reportedly testified that the retail division was in disarray. According to the AP, she cited the discovery — under an Enron trader’s desk — of tens of millions of dollars’ worth of uncashed checks from a California utility.

She was followed on the stand by Belden, who provided the court with a primer on the West Coast power market chaos in 2000 and 2001, according to the Houston Chronicle. He explained how Enron profited from power prices that spiked to more than 100 times normal level at one point: “The chaos drove high prices and the high prices drove our profits,” he reportedly said.

Over repeated objections by the defense, prosecutors also questioned Belden about Enron’s self-portrayal as a logistics company rather than a trading company. “The statement is false with respect to my time and my experience in western power trading,” Belden reportedly stated.

Although cross-examination of Belden was deferred till Wednesday, prosecutors pursued this train of thought with their star witness of the day. Delainey — who at 34 became the chief executive officer of Enron North America, according to the AP — said he met nearly daily with Skilling, who he described as very detail-oriented, very complete, very thoughtful, very smart.

In preparation for a January 2001 meeting with analysts, the Chronicle reported, Delainey testified that Skilling wanted him not to portray the division he headed as a logistics unit, not as a trading unit, because “the investment community does not pay significant multiples for significant trading revenues, especially speculative trading revenues.”

Delainey reportedly added that even with the company, executives wanted to refer to the traders as “risk managers” for the same reason, even though “they were encouraged to take large and well-thought out trades based on their view of where supply and demand was and where they could profit the most based on those bets.”

In actuality, Delainey reportedly testified, the company regularly recorded huge losses and gains on a daily basis. According to Reuters, he observed that on one day in 2000, traders lost more than $500 million, equivalent to the entire company’s profit in 1999. But for a time, he reportedly added, huge gains enabled the trading business to post massive earnings for the year.

Prosecutors also asked Delainey whether he was surprised to learn, in an email, about discussions regarding the illegal use of reserves to boost earnings. “No, it was standard operating procedure at Enron,” he reportedly replied. “My history with Enron in Houston was that we tended to be pretty fast and loose with the rules, generally.”

He also recounted one particular transfer he suggested at a high-level meeting in January 2001, reported the Chronicle. Delainey told jurors that he had recommended moving an “uncollectable” $500 million receivable from Enron Energy Services to his trading division, which was much more profitable — in Delainey’s words, from the “little bucket” to the “big bucket.”

Skilling told him “that sounds like a good idea” and that he should follow up with Enron chief accounting officer Richard Causey, Delainey added.

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