Risk & Compliance

SEC Charges Two for Enron’s Brazil Deal

Alleged misconduct concerned the 1999 sale of an interest in a troubled power project in Cuiaba, Brazil, to one of Andrew Fastow's infamous partner...
Dave Cook and Stephen TaubMarch 28, 2007

The Securities and Exchange Commission has charged two former Enron lawyers for their role in the sale of a Brazilian power project to one of the company’s infamous partnerships.

The SEC alleged that Jordan H. Mintz, former vice president and general counsel of Enron’s global finance group, and Rex R. Rogers, former vice president and associate general counsel, of making material misrepresentations and omitting material disclosures from the company’s public filings. According to the commission, the misconduct concerned Enron’s 1999 sale of an interest in a troubled power project in Cuiaba, Brazil, to a related party called LJM Cayman (a.k.a. LJM1), controlled by then-chief financial officer Andrew Fastow.

Last October, the SEC charged three former Enron executives — Jerry Kent Castleman, Cheryl Lipshutz, and Kathleen Lynn — in connection with the Brazilian deal. The commission charged that after the sale of the interest in the power project, Enron subsidiary Enron South America deconsolidated its interest in the project, and Enron recognized earnings from related gas-supply contracts. Enron and its South American subsidiary needed these earnings to meet estimates for the third and fourth quarters of 1999, the SEC alleged.

Deconsolidation and recognition didn’t reflect appropriate accounting, the commission elaborated, because the seller (Enron) did not transfer to the buyer (LJM) the usual risks and rewards of ownership. Specifically, an unwritten, undisclosed side agreement guaranteed that LJM would not lose money on its Cuiaba investment, according to the commission.

The SEC also alleged that in 2001, to satisfy the side agreement, Enron bought back LJM’s interest without reversing the previously recognized earnings, and even paid LJM a profit despite the poor economics of the project.

In Wednesday’s SEC action, Mintz and Rogers were charged with violating the antifraud and other provisions of the federal securities laws, and aiding and abetting Enron’s violations of the antifraud and periodic-reporting provisions. In addition, the complaint charged Mintz with violating the books-and-records and lying-to-auditors provisions, and Rogers with aiding and abetting violations of the insider stock-sale reporting provision by then-chairman Kenneth Lay.

As general counsel of Enron’s global finance group, Mintz was allegedly was responsible for managing the related-party disclosures in Enron’s 2000 proxy statement and second-quarter 2001 report, and closing a fraudulent related-party transaction while knowingly or recklessly disregarding that the transaction was in fulfillment of a secret side agreement. Rogers, as Enron’s top securities lawyer, was responsible for the timing and content of the company’s SEC filings, including its 2000 proxy, second-quarter report, and relevant 2001 Form 4 filings for insiders who buy and sell company securities.

The SEC is seeking permanent injunctions against further violations of the relevant securities laws; disgorgement with prejudgment interest and civil money penalties; and officer-and-director bars.

Mintz’s attorney, Christopher Mead of London & Mead, said that “Mr. Mintz denies the charges and intends to fight them vigorously in court.”

Rogers’s attorney, B. Michael Rauh of Blank Rome, stated: “Mr. Rogers is a person of great integrity and the highest moral character. He was never involved in any wrongdoing, and we look forward to vigorously defending these baseless allegations.”

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