Enron Corp's lenders may be able to recover as much as $5 billion in assets, the failed energy trading company shifted to other entities using improper accounting techniques, according to a bankruptcy court examiner's report.
Using a variety of accounting methods, Enron "so engineered its reported financial position and results of operations that its financial statements bore little resemblance to its actual financial condition or performance," the report said.
For example, the examiner, Neal Baston, found that in 2000 96 per cent of Enron's net income of $979 million was attributable to such accounting manipulations.
In addition, questionable accounting allowed the company to report total debt of $10.2 billion at the end of 2000-- less than half of the examiner's figure of $22.1 billion.
Enron filed for Chapter 11 bankruptcy protection in December 2001 after disclosing it created partnerships that allowed it to hide significant amounts of debt. At the time, it was the United States' largest bankruptcy, wiping out billions in shareholder assets, including the retirement savings of thousands of employees.
The Houston company used transactions that involved so-called "special purpose entities" to transfer assets off its balance sheet, the report said. At the same time, however Enron's reliance on such transactions, while not illegal, was not "adequately disclosed."
Using "prepay transactions," for example, Enron transferred commodity sales contracts from party to party. According to the examiner, none of the parties assumed any risk with respect to commodity price fluctuations, and therefore the transactions should have been accounted for as debt rather than as "price risk management activities."
As a result, the transactions kept $5 billion in debt off Enron's balance sheet.