Reliant Settles SEC Trading Probe
Reliant Resources Inc. and Reliant Energy settled an investigation by U.S. securities regulators Monday, promising never to engage in improper “round-trip” trades or accounting transactions designed to shift earnings.
The Securities and Exchange Commission said it did not impose a fine on Reliant Resources, a Houston-based electricity provider, or on Reliant Energy, which in August 2002 became CenterPoint Energy Inc., a Texas utility.
The companies settled the matter, an administrative proceeding covering allegations spanning 1999-2001, without admitting or denying any wrongdoing, the SEC said.
Last May, Reliant restated revenue over that period by $3.8 billion, removing the effect of the bogus trades from its financial statements. Because revenue offsets expenses, it had no effect on net earnings.
“Resolving this matter ... [allows] us to move forward with confidence,” Reliant’s interim Chairman and Chief Executive Joel Staff said.
CenterPoint general counsel Scott Rozzell said: “CenterPoint Energy is the successor to Reliant Energy for financial reporting purposes, and because of that we are pleased to have this matter resolved.”
Reliant shares rose 30 cents, or 5.6%, to $5.63 and CenterPoint Energy’s stock was up 3 cents to $8 on the New York Stock Exchange.
The SEC said Reliant Resources, which was a wholly owned subsidiary until it went public in May 2001, “promptly” reported the round-trip trades to the SEC and the public.
The company admitted it engaged in the trades when the tactic came under fire after Enron Corp.’s collapse. Enron popularized the strategy, in which energy is simultaneously bought and sold at the same price to falsely pump up trading volume.
A Justice Department criminal probe into Reliant’s trading activities is ongoing. The Department does not comment on open investigations.
Reliant Resources also settled allegations that it used complex gas transactions to shift pretax earnings of $20 million from the fourth quarter in 2000 to the first quarter of 2001. It undertook similar efforts to shift $134 million in second- and third-quarter 2001 earnings to 2002 and 2003, the SEC said.
In both cases, the company wanted to shift earnings driven by high energy prices into future quarters when prices were expected to drop, the SEC said. The company has since restated its earnings to properly record them in the correct periods.
