Former Enron CEO Jeff Skilling listens to a brief statement by his attorney at the end of the first week of the Enron trial in the federal court in Houston, Texas, February 2.
HOUSTON, AP:
ENRON TRIED to do an end-run around accounting rules by dropping a plan to sell assets in a failed water business for a US$1 billion growth strategy, instead, a former accountant who handled the company's books said yesterday.
John R. Sult, a former Arthur Andersen LLP auditor who oversaw the books on Enron's Azurix water venture, told jurors that tossing aside the plan to shed Azurix's assets would have saved Enron from recording hundreds of millions of dollars in losses.
"By merely standing up and making the assertion that the strategy exists somehow makes the problem go away," he testified, explaining his view of Enron's plan.
But Sult, who kicked off the eighth week of the fraud and conspiracy trial of Enron executives Kenneth Lay and Jeffrey Skilling, said on cross-examination that he never discussed Wessex Water Ltd. or Azurix with Lay, nor was Lay involved in accounting analyses related to a possible writedown.
An accounting rule that took effect in January 2002 would have required Enron to book losses of US$700 million or more.
That was the difference between the inflated value of Wessex, Enron's British water utility, and its true value. Had Enron maintained its plan to sell Wessex and other Azurix assets, the new accounting rule would have forced the energy company to reconcile the book values with true fair market values.
Enron bought Wessex for US$2.2 billion in 1998. In 2002, a subsidiary of Malaysian energy group YTL Power International bought the company from the bankrupt parent for US$777 million and nearly US$1 billion in assumed debt.
The charges against Lay, Enron's founder, include an allegation that he lied to outside auditors in October 2001 by claiming Enron planned to invest in Wessex rather than sell it so the energy company could avoid the writedown. Lay told analysts in a late October 2003 conference call - a few weeks before the company sought bankruptcy protection - that Andersen had examined the issue and determined no writedown was necessary.
The indictment alleges that such a writedown could have prompted credit rating agencies to downgrade Enron's rating, which was vital to the energy company's ability to borrow millions to support its trading operation.
