Duke Saw Slowdown but Kept Mum, Critic Claims

"At this point, [my boss] stated, 'Maybe I should just take these handouts up,' and seemed to get nervous over the questions being asked," Stone told the SEC.

Big Trouble

But back in October of 2001, Stone had fixated on bigger things. Duke's merchant energy division was pitching a plan to cut earnings by 15 cents a share -- or by three times more than the pre-funded donations -- using a charge that Stone felt was questionable at best.

Duke was now looking to establish a $183 million reserve to cover penalties associated with canceling turbine orders from General Electric (GE Quote). But the third quarter, when Duke hoped to take the charge, had already closed without Duke apparently even negotiating the matter with GE, Stone says.

Looking back, Stone now sees an ominous warning -- transmitted internally by his own company -- of the downturn to come.

"I don't think you talk about booking a reserve like that unless you have serious concerns about the health of that business," says Stone, who was transferred out of forecasting after going to authorities with his concerns about Duke's accounting. "But this issue never came up in public until another year later.

"And by then, Duke was already going to hell in a hand basket."

Duke told TheStreet.com that it took the turbine charge when it could "properly account for the impact." But internal emails show the company considered taking the charge nearly a full year earlier. Indeed, Duke continued to toy with the idea until the 11th hour.

"There is still some possibility that it could be booked in the third!" division CFO Kirk Michael wrote in an email five days before Duke wrapped up its third-quarter 2001 earnings report. "Stay tuned: This is going to be exciting!!"

Ultimately, the proposal landed on the desk of CEO Rick Priory, who decided against the charge right before the earnings release.