The government nailed another
hide to the post Thursday when the fallen energy trader's former North American chief executive pleaded guilty to a criminal fraud charge and settled allegations that he carried out illegal insider trading.
David W. Delainey agreed to pay $8 million in fines and disgorgements in separate settlements with the
Securities and Exchange Commission
and Justice Department. The latter filed the criminal count over Delainey's role in propping up Enron's earnings through a series of underhanded bookkeeping schemes.
Delainey's settlement is a first among the Enron defendants in that it includes an insider-trading count. The government argues that any money he collected from Enron stock sales must be illicit because he knew of the accounting shenanigans.
Prosecutors said Delainey booked "millions of dollars in profits" selling shares while in possession of material nonpublic information.
Legal experts have long speculated that an insider trading case could be the route through which the government tries to bring down Enron founder Kenneth Lay, given the uncertainty about what role, if any, he might have had designing the accounting schemes. Lay, the company's chairman when it went belly-up in late 2001, hasn't been charged with anything, but is currently fighting a federal subpoena for personal documents.
The rest of Delainey's brief is consistent with other Enron settlements, including the plea bargain that landed former treasurer Ben Glisan in jail on Sept. 10. It also closely mirrors a settlement reached Oct. 9 with former chief accountant Wesley H. Colwell. Delainey, the former chief executive of Enron North America, was said by prosecutors to have played a role in illegal earnings management through asset inflation, manipulation of reserve accounts, and other accounting legerdemain.
Delainey will pay a fine of $3.74 million to settle the SEC's civil complaint and return another $4.26 million in ill-gotten proceeds as part of the criminal plea with the Justice Department. He is barred from ever again being an officer or director of a public company, and he agreed to cooperate with the government's Enron probe.
That's more bad news for the biggest fish currently in prosecutors' formal sights, former CFO Andrew Fastow, whose fraud trial begins next April.