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Ex-Enron exec testifies to earnings scheme

The former top accountant for Enron Corp.'s profitable trading division testified Monday that he improperly raided reserves to increase earnings in mid 2000 when he learned former chief executive Jeffrey Skilling wanted to beat Wall Street expectations.

Wesley H. Colwell didn't say Skilling ordered him to plunder reserves to boost earnings. He said, however, that he told his boss - then-Enron North America chief executive David Delainey - in an e-mail days before Enron released second-quarter 2000 earnings that he understood it was Skilling's "preference" to surpass analyst expectations.

Twice within a five-day stretch between the close of the second quarter in 2000 and Enron's announcement of earnings, Colwell reduced reserves by $7-million. The $14-million was added to reported income so Enron could announce earnings-per-share of 34 cents rather than the 32 cents Wall Street expected, making the company appear more successful than it was.

"Did you use reserve accounts at Enron North America to fraudulently manipulate Enron's reported earnings?" prosecutor Sean Berkowitz asked.

"Yes," replied Colwell, the fifth prosecution witness in the 5-week-old fraud and conspiracy trial of Skilling and Enron founder Kenneth Lay.

Other witnesses have testified that Skilling either ordered or had authority to order the last-minute increase in reported earnings-per-share in the second quarter of 2000.

Prosecutors contend Lay and Skilling repeatedly lied about Enron's financial health when they allegedly knew fraudulent accounting maneuvers propped up a wobbly company in the months before it crashed into bankruptcy protection in December 2001.

The defendants say there was no fraud at Enron, and negative publicity coupled with diminishing market confidence fueled the company's swift failure.

Colwell, 46, testified as part of an immunity deal he obtained from prosecutors. In October 2003, he paid a half-million dollars to settle Securities and Exchange Commission civil allegations of manipulating Enron's earnings, but has not been charged with a crime.

"If I tell the truth and don't withhold any information, I will not be prosecuted for my crimes while at Enron," Colwell told jurors Monday when explaining his deal.

He has yet to be questioned by the defense teams.

The SEC complaint alleged Colwell and others improperly set aside higher-than-expected trading profits to report in future quarters so Enron would appear to be a stable, growing company rather than one vulnerable to market volatility.

The SEC said Colwell also participated in other schemes, including:

+ Consolidation of the money-losing trading arm of Enron's highly touted retail energy unit into the larger trading division to hide hundreds of millions of dollars in losses.

+ Increasing the recorded book value of Mariner Energy Inc., an oil and gas company that was once Enron's largest merchant asset, by $100-million to appear to have met quarterly earnings targets.

Sixteen ex-Enron executives have pleaded guilty to crimes ranging from conspiracy to insider trading, and are cooperating with prosecutors.

In addition to the $500,000 SEC fine, Colwell lost his CPA license and is barred from being an officer in a publicly traded company. He is not a felon.

Skilling faces 31 counts of fraud, conspiracy, insider trading and lying to auditors, while Lay faces seven counts of fraud and conspiracy. If convicted, both face decades in prison. Only Skilling faces allegations of improper stock sales.

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