Posted on 06/20/2002 10:40:53 PM PDT by lewislynn
June 20, 2002, 11:55PM
Reliant Resources disclosed Thursday night federal regulators upped their inquiry of the company to a formal investigation, news that may cause a further decline in the company's stock price today.
The Securities and Exchange Commission had already launched an informal inquiry into the company related to an accounting matter and certain energy trades.
Houston-based Reliant Resources, among other operations, trades energy and owns deregulated power plants.
In a formal investigation, the SEC has the ability to subpoena documents and individuals. In a statement, Reliant Resources said it has cooperated with the investigation and will keep doing so.
The company noted that the SEC now has the ability to "compel testimony and production of documents" from parties who don't work at the company.
In a market where investors are quick to dump stock in companies that trade energy, the news isn't likely to help Reliant Resources, which saw its shares close down a cent Thursday at $9.30. The information was released several hours after the markets closed.
Reliant Resources shares debuted in an initial public offering in May 2001 at $30.
The two issues SEC is investigating:
· Questionable trades Reliant said were used to inflate its trading volumes and revenues during 1991-2001. The company, which disclosed the trades in mid-May, said the increased revenues by about 10 percent over the three-year period.
The so-called wash trades involved the buying and selling of the same amounts of energy at the same time. They have no impact on a company's earnings, but can boost volumes and revenues, making it appear a bigger trader than it is actually was.
Last month, Reliant said the traders responsible were misguided. They are no longer with the company.
The U.S. Attorney's Office is also looking into the trades.
· The way it accounted for certain energy deals in the second and third quarter of 2001. Purchases of natural gas and electricity were originally carried on its books as cash-flow hedges, which would have let it book gains on the deals over several years.
But Reliant discovered it had made an error: The deals didn't qualify as hedges under generally accepted accounting practices and should have been listed as so-called mark-to-market profits that show up on the books almost immediately. The company restated earnings for those two quarters as a result.
Reliant Resources is still about 80 percent owned by its parent, Reliant Energy. The rest is held by public investors as result of last year's initial public offering.
The two companies are slated to be totally separated this year.
Reliant Resources said the SEC's formal investigation addresses its financial statements for 2001, along with Reliant Energy's for 1999 and 2000.
In the two earlier years, Reliant Energy held the business lines that are now part of Reliant Resources.
Reliant Resources, which said Monday its profit outlook for year-over-year growth next year was flat and that it had let go almost 50 full-time workers, isn't the only company involved in energy trading the SEC is investigating.
Houston-based Dynegy is also under formal investigation by securities regulators relating to its accounting for a natural gas deal known as Project Alpha.
The SEC has also made informal requests of other energy traders concerning wash trades.
Thereby intentionally duping investors into think they're much bigger than they are.
Last month, Reliant said the traders responsible were misguided. They are no longer with the company.
In other words they did it, but once they got caught at it they accused some lowly employees then fired them.
The local reports seemed to focus on Enron-Enron employees but I got laid off from Compaq and was talking with someone who got canned when the multiBillion $$$ American General insurance got bought out.
Exxon, Continental, and on. I know people that got canned. It's going to be scary how housing appraisals rise in this bad economy to pay property taxes to cover the city services that would otherwise run short to pay for the $1Billion+ in new downtown stadiums. Oh, and all those ritzy downtown clubs with the $25 entrance fees are closing up too.
Now we are dealing with fewer players owning more of the stakes. Hello America, how are you?
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