Federal officials are stepping up their investigation of Enron's deals to swap fiber optic network capacity with Qwest Communications and Global Crossing, according to people close to the inquiries.þþThe Securities and Exchange Commission is examining a $300 million deal last September between Enron and Qwest Communications to determine whether the two companies used accounting tricks to inflate their revenues or avoid booking losses on certain assets in a swap of high-speed network capacity, people who have talked with the S.E.C. said. þþCongressional investigators, meanwhile, are seeking to widen the scope of a separate inquiry into accounting practices at Enron and Global Crossing by seeking information about a March 2001 fiber optic network swap, as well as similar transactions involving the two companies, people close to that investigation said.þþThe new moves are part of the government's continuing examination of whether, from the late 1990's through 2001, telecommunications companies and energy companies conducted swaps of network capacity merely to inflate the reported revenue of the trading parties or to mask losses. þþThe House Energy and Commerce Committee is preparing to contact executives at Enron and Global Crossing in the coming weeks. þþÿThis scheme certainly has raised red flags on Capitol Hill,ÿ said Ken Johnson, a spokesman for the House Energy and Commerce Committee, referring to the March 2001 Enron deal with Global Crossing. ÿFrankly, based on the evidence we've seen, this may not have been the first time these companies appeared to have played footsie.ÿþþAn Enron spokesman declined to comment, saying the company was cooperating with various government investigations.þþPeople involved in the Enron deal with Global Crossing said it was brokered by a third company, Reliant Resources, and was intended to sidestep accounting rules and to disguise a loan to Global Crossing, while allowing Enron and Global Crossing to book cash revenues at a time when they were both struggling to meet Wall Street's forecasts.þþGlobal Crossing, however, said in a statement issued late Monday that it had properly accounted for the deal by listing the deal as a liability on its balance sheet. The company did acknowledge, though, that it had recognized $18 million in revenue from the deal over the life of the contract. þþUnder the terms of the agreement, Global Crossing said it agreed to buy $18 million of services from Enron to be paid over eight years, and also agreed to sell $18 million of services to Enron and be paid immediately. þþIn the transaction between Enron and Qwest last September, people involved in the deal said the companies had overstated the value of the transaction so that each side would obtain a greater revenue benefit. But Qwest officials have said their network contracts were properly valued.þþQwest had disclosed in early March that the S.E.C. was planning to investigate some of its network transactions. But it was only in recent weeks that investigators from the commission began to zero in on the Enron deal.þþÿAs we announced on March 11, 2002, the S.E.C. has inquired about the revenue recognition and accounting treatment of sales of optical capacity assets,ÿ Tyler Gronbach, a spokesman at Qwest, said yesterday. ÿWhile we have no knowledge of what the S.E.C. is specifically looking at, we continue to cooperate fully with the inquiry.ÿþþAs part of their investigation, officials at the S.E.C. are also seeking information about Enron's efforts to market various potentially fraudulent ÿearnings managementÿ techniques to other big corporations that were struggling to meet profit or revenue forecasts in 2000 and 2001, people close to the investigation said. þþEnron called the offerings ÿstructured financeÿ solutions, former executives said, and internal documents from presentations described swapping fiber optic network capacity and using various accounting techniques to ÿaccelerateÿ earnings. þþIn a September 2000 presentation to Singapore Telecom, for example, Enron offered to accelerate the company's earnings and promised that a ÿlump sum payment can be timed to meet particular needs of SingTel.ÿþSingapore Telecom did not go through with the deal. But several companies did, and the S.E.C. officials are trying to identify them and determine whether Qwest and Global Crossing were among them.þþLast evening, meanwhile, creditors of Global Crossing, which is operating under Chapter 11 banktruptcy protection, were negotiating with two Asian companies that are considering a formal takeover offer for the company. The creditors and the companies, Hutchinson Whampoa of Hong Kong and Singapore Technologies Telemedia were trying to arrange an extension of the deadline for the companies to submit an offer until Friday, instead of the original deadline of yesterday.þ
Source: NY Times
