A former Enron Corp. executive pleaded guilty Thursday to one count of insider trading, acknowledging he was in on a “senior management” scheme to manipulate the company’s earnings to meet or exceed Wall Street’s expectations.
David W. Delainey, a former chief executive of Enron North America, agreed to cooperate with federal prosecutors in exchange for the plea.
His indictment, handed up Wednesday and unsealed Thursday, alleges he sold $4.25 million worth of stock from January 2000 through January 2001 when he knew about internal scams to manipulate earnings and hide losses so Enron would appear financially robust.
“I was aware of material non-public information” during that time span, he softly told U.S. District Judge Kenneth Hoyt during a hearing in federal court in Houston.
Delainey agreed to pay $4.25 million, his profits from his admitted insider trading, to the Justice Department. In a separate deal, he agreed to pay $3.74 million to the Securities and Exchange Commission. He was freed on his own recognizance.
The indictment alleges that higher-than-expected profits from Enron North America, the company’s once-envied trading unit, were set aside to mask volatility so the unit would appear to grow smoothly, up to 20 percent each year.
Those reserves also were used to hide hundreds of millions of dollars in losses at Enron Energy Services, the company’s failed retail energy unit, and millions more in uncollectible receivables accumulated during the California power crisis of 2000 and 2001.
Delainey ran the retail energy unit from February 2001 until he left the company in March 2002.
“This misuse of reserves in order to manipulate Enron’s earnings results was discussed and approved among Enron’s and Enron North America’s senior commercial and accounting managers,” the indictment said.
Prosecutors also allege:
- Enron managers inflated values of assets to appear to have met earnings targets.
- Managers used improper accounting methods to structure transactions to avoid booking losses and writedowns.
- Managers manipulated accounting to hide losses on a 1997 contract to supply energy on demand to the Tennessee Valley Authority.
The indictment did not identify the other managers, and federal prosecutor Sam Buell of the Justice Department’s Enron Task Force declined to say who could be charged next.
“Enron company executives engaged in widespread and pervasive fraud to manipulate the company’s earnings results,” Buell said. “The events of today show the truth will come out about Enron and its collapse.”
John Dowd, Delainey’s Washington-based attorney, declined to comment.
During the fourth quarter of 2000, when prosecutors allege “Enron corporate management” ordered Enron North America to come up with $200 million to meet earnings objectives, Kenneth Lay was chief executive and chairman, Jeffrey Skilling was chief operating officer and Andrew Fastow was chief financial officer.
Lay and Skilling, who became chief executive in February 2001, have not been charged. Fastow is awaiting trial on nearly 100 counts of insider trading, money laundering, fraud, conspiracy and filing false tax forms. He has pleaded innocent and is free on bond.
The indictment refers to Skilling by his former title in a description of when Enron’s stock, which peaked at $90 per share in August 2000, began an irreversible slide when scandal gripped the company in the fall of 2001.
In August that year, Skilling — noted as “Enron’s CEO” in the indictment — abruptly resigned, citing personal reasons. Enron revealed massive third-quarter losses in mid-October. Investors fled in droves and the company went bankrupt and laid off thousands of employees six weeks later.
Delainey, a 37-year-old Canadian citizen, worked his way up Enron’s corporate ladder after joining its operations in Canada in 1994. He later was appointed chief executive officer of Enron North America and moved on to head Enron Energy Services.
In early March 2002, he donated $10,000 to the Ex-Enron Employee Relief Fund Account, one of several funds established to help laid-off Enron workers.
Separately Thursday, U.S. District Judge Werlein scheduled a June 14 trial in a conspiracy case against four former Merrill Lynch & Co. executives and two former Enron executives.
The six, who have pleaded innocent and are free on bond, are charged with conspiracy to falsify books for allegedly helping push through loan from the brokerage firm disguised as a sale of Nigerian barges in December 1999 so the company could appear to have met earnings targets. Two also are charged with perjury and obstruction for lying about the deal to investigators and a grand jury.