Thursday, June 21, 2007
Former Enron treasurer Jeffrey McMahon, who later became its CFO and then president, settled an SEC civil enforcement action related to the company's accounting for the Nigerian Barge transaction in 1999 designed to boost its income and other financial disclosure issues. McMahon succeeded former CFO Andrew Fastow in October 2001, and became Enron's president and chief operating officer after it entered bankruptcy in 2002. According to the SEC Litigation Release (here):
[T]he Commission's Complaint alleges that McMahon participated in a fraudulent transaction involving the "sale" of an interest in Nigerian power generating barges to Merrill Lynch that allowed Enron to improperly report $12 million in earnings in the fourth quarter of 1999. Enron never should have recorded profits from this purported sale because the risks and rewards of ownership in the barges never passed to Merrill Lynch due to an oral side agreement made by McMahon and others. The Complaint also alleges that while serving as Enron's Treasurer from April 1998 through March 2000, McMahon made false and misleading statements to the national credit rating agencies regarding Enron's financial position and cash flow. The Complaint alleges that the false and misleading statements included statements about Enron's cash flow from operations that failed to disclose that a portion of such cash flow was a result of structured financings and debt-like obligations that had nothing to do with Enron's operations or trading business. In addition, the Complaint alleges that McMahon made additional false and misleading statements to the rating agencies after he became Enron's Chief Financial Officer on October 24, 2001 through Enron's bankruptcy filing in December 2001.
McMahon agreed to disgorge profits of $150,000 and to pay an equal amount as a civil penalty, along with an administrative bar from appearing before the Commission as an accountant with a right to reapply in three years. McMahon was not charged with any crimes, one of the few senior executives to avoid criminal prosecution. He was removed as treasurer in 2000 after he complained about conflicts of interest related to Fastow's various investment vehicles that played such a key role in the company's collapse. A Houston Chronicle story (here) discusses the settlement. (ph)