U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 19067 / February 8, 2005
Accounting and Auditing Enforcement
Release No. 2182 / February 8, 2005
Securities and Exchange Commission v. Timothy A. DeSpain, Civil Action No. H-05-00398 (SDTX) (February 8, 2005)
SEC CHARGES TIMOTHY A. DeSPAIN, FORMER ENRON EXECUTIVE, WITH VIOLATING FEDERAL SECURITIES LAWS
Defendant Barred From Serving As Officer Or Director of Public Company
The Securities and Exchange Commission today charged Timothy A. DeSpain with violating the antifraud provisions of the federal securities laws. As alleged in the Commission's Complaint, DeSpain disseminated false and misleading information to national credit rating agencies about Enron's business and financial condition. DeSpain has agreed to a permanent fraud injunction and to be permanently barred from acting as an officer or director of a public company. As part of the settlement agreement, which is subject to the approval of the U.S. District Court, DeSpain will be ordered to pay disgorgement of $300,000, payment of which will be waived based upon his sworn financial statements and other documents submitted to the Commission.
Specifically, the Commission's Complaint alleges the following: DeSpain, while serving as Enron's Assistant Treasurer from 1999 through the fall of 2001, was directed by his superiors to engage in, and did engage in, conduct that DeSpain recognized was intended to fraudulently manipulate Enron's credit rating. DeSpain and others at Enron falsely represented to credit rating agencies that Enron was meeting its cash flow targets with cash generated from its operating activities at a time when it was actually experiencing significant shortfalls in cash from operating activities. DeSpain and others falsely portrayed as cash from operating activities cash generated by Enron from complex structured transactions, known internally as Project Nahanni and "prepays." In Project Nahanni, Enron improperly reported the sale of $500 million of Treasury securities as cash flow from "operations." In prepay transactions, Enron accounted for cash received from financial institutions as operating cash flows, when, in substance, prepays created debt-like obligations. Over the course of DeSpain's tenure as Assistant Treasurer, Enron's obligations under the prepay transactions grew to approximately $5 billion. Enron's Treasurers directed DeSpain not to reveal the nature and extent of the prepay transactions entered into by Enron to the credit rating agencies, and DeSpain complied with these directions.
The antifraud provisions DeSpain agreed to be enjoined from violating are Section 10(b) of the Securities Exchange Act of 1934 and Exchange Act Rule 10b-5. DeSpain consented to the entry of Final Judgment by the Court without admitting or denying the allegations of the Complaint.
On October 5, 2004, DeSpain pleaded guilty to one count of conspiracy to commit securities fraud related to Enron's dissemination of false and misleading information to national credit rating agencies about Enron's business and financial condition.
The Commission acknowledges the assistance of the U.S. Department of Justice Enron Task Force. The Commission's investigation is continuing as to others.
SEC Complaint in this matter