U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 19623 / March 27, 2006
Accounting and Auditing Enforcement
Release No. 2399 / March 27, 2006
Securities and Exchange Commission v. David T. Leboe and Dale G. Rasmussen, Civil Action No. H-06-1020 (SDTX) (March 27, 2006)
SEC CHARGES TWO FORMER ENRON EMPLOYEES
WITH VIOLATING FEDERAL SECURITIES LAWS
David T. Leboe, Former Enron Accountant, and Dale G. Rasmussen, Former Enron Attorney, Simultaneously Settle Charges
The Securities and Exchange Commission today charged David T. Leboe, a former Enron accountant, and Dale G. Rasmussen, a former Enron attorney, with violating the antifraud provisions of the federal securities laws and with aiding and abetting Enron's violations of the reporting and record-keeping provisions. As alleged in the Commission's Complaint, Leboe and Rasmussen, along with others, engaged in a scheme to manipulate Enron's publicly-reported earnings, which resulted in Enron filing materially false and misleading financial statements in the company's annual report on Form 10-K for the fiscal year ended December 31, 2000, and in the company's quarterly report on Form 10-Q for the third quarter of fiscal year 2000.
Specifically, the Commission's Complaint alleges, among other things, that Leboe and Rasmussen worked on a project known as "Coyote Springs 2," which involved the sale of a power plant development project in Oregon. In conformity with relevant accounting rules, revenues from such a project could only be recognized over time, on a percentage of completion basis, as the construction progressed. Subsequently, Leboe and Rasmussen, among others, carried out a scheme to circumvent the accounting rules and to recognize an immediate gain based on the appreciation in the price of the turbine generator that was to be installed at the Coyote Springs 2 power plant.
As alleged in the Complaint, Leboe engaged in a number of improper accounting practices that materially increased Enron's annual and quarterly revenue and net income, in a departure from Generally Accepted Accounting Principles (GAAP). These practices included, among other things, improperly accelerating the recognition of revenue from the sale of the Coyote Springs 2 construction contract, and concealing undocumented side agreements from Enron's independent auditors. In addition, the Complaint alleges that Leboe actively sought to keep others from disclosing information to Enron's independent auditors about these side agreements. Furthermore, the Complaint alleges that Rasmussen, the primary Enron in-house attorney working on the sale, negotiated various terms of the transaction and drafted several of the key documents. While doing this, he worked closely with Enron's accountants to ensure that the wording in the legal documents did not jeopardize Enron's efforts to circumvent GAAP. In addition, the Complaint alleges that Rasmussen was aware that undocumented side agreements relating to the sale were being concealed from Enron's independent auditors and that he actively sought to keep others from disclosing information to the auditors about these side agreements.
Simultaneously with the filing of the Complaint, Leboe and Rasmussen, without admitting or denying the Commission's allegations, each consented to the entry of a final judgment that permanently enjoins each from violating Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 (Exchange Act) and Rules 10b-5 and 13b2-1 thereunder, and from aiding and abetting violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder. As part of the settlement agreements, which are subject to the approval of the U.S. District Court, each has agreed to pay nominal disgorgement of $1 and a civil penalty of $30,000. The Commission intends to have these funds paid into a court account pursuant to the Fair Fund provisions of Section 308(a) of the Sarbanes-Oxley Act of 2002 (Fair Fund) for ultimate distribution to victims of the fraud.
Leboe also consented to the entry of an Administrative Order, pursuant to Rule 102(e) of the Commission's Rules of Practice, barring him from appearing or practicing before the Commission as an accountant, with a right to re-apply after five years. Similarly, Rasmussen consented to the entry of an Administrative Order, pursuant to Rule 102(e) of the Commission's Rules of Practice, barring him from appearing or practicing before the Commission as an attorney, with a right to re-apply after three years.
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