Ex-Enron Exec Pleads Guilty
David W. Delainey, who once ran Enron Corp.’s biggest unit, pleaded guilty to insider trading Thursday and became the highest-ranking former executive to cooperate with a criminal investigation of the company’s collapse.
Delainey, 37, also settled a related civil case brought by the Securities and Exchange Commission and agreed to pay $3.74 million in fines and forfeit $4.26 million in ill-gotten gains.
Delainey was chief executive of Enron North America, which managed Enron’s energy and asset trading before its December 2001 bankruptcy filing.
The guilty plea in Houston gives prosecutors the help of a high-ranking insider as they weigh whether to charge former Enron Chairman Kenneth L. Lay and former Chief Executive Jeffrey K. Skilling in the accounting scandal that wiped out $68 billion of market value and 5,600 jobs.
“This is going to be very helpful for prosecutors not just on the financial reporting issues but also for anything related to the manipulation of energy markets, particularly in California,” said Duke University law professor James Cox, an expert in securities law. “Because he was high up in the organization, he had a great view of what was happening below.”
Cox said Delainey might be able to give prosecutors a detailed understanding of meetings at Enron involving Lay, Skilling and Andrew S. Fastow, the former chief financial officer scheduled to go on trial next year.
“Today’s criminal conviction and cooperation of one of Enron’s most senior executives are very significant developments in the investigation of Enron’s collapse,” Assistant Atty. Gen. Sam Buell said after Delainey’s appearance before U.S. District Judge Kenneth Hoyt. “A senior executive has now admitted that Enron company executives engaged in widespread and pervasive fraud to manipulate the company’s earnings results.”
Although Delainey’s insider-trading conviction carries a maximum prison term of 10 years, his cooperation may earn him a substantial reduction. Prosecutors asked Hoyt to postpone Delainey’s scheduled Feb. 2 sentencing.
The SEC complaint, filed Thursday in federal court in Houston, accused Delainey of aiding “a wide-ranging fraudulent scheme carried out by Enron to manipulate Enron’s reported financial results.”
The complaint said Delainey used his insider knowledge of deceptive accounting to reap more than $4 million by selling Enron stock between January 2000 and January 2001.
“While in possession of material non-public information, namely, that Enron management was scheming to manipulate Enron’s reported financial results, Delainey sold large amounts of Enron stock that he had received in the form of stock options and restricted stock,” the SEC complaint said.
Delainey neither admitted to nor denied the SEC allegations in settling the civil charges.
John Dowd, Delainey’s lawyer, had no comment and said his client wouldn’t discuss the case.
Enron, once the seventh-biggest company in the U.S. by revenue and the world’s biggest energy trader, filed for bankruptcy protection in December 2001 after writing off $1 billion in failed investments and admitting it hid losses of $1.2 billion in off-the-books partnerships.
