[The New York Times]
The Enron Corporation said today that it would permanently close its Enron Oil Corporation subsidiary after learning that the unit had lost $85 million because of unauthorized trading in the petroleum futures markets.
The company said that the two executives at the division who were responsible for the improper trades had been dismissed and that the division was expected to discontinue operations next August after contracts and obligations had been met. It declined to name the executives pending an investigation. The $85 million charge would result in a loss in the parent’s third quarter, the company said.
”We basically had two senior people colluding and violating the trading limits imposed on this group and filing fraudulent reports to the corporation over a number of months,” said Kenneth L. Lay, chairman and chief executive of the Enron Corporation.
Mr. Lay, who called the loss an ”expensive embarrassment,” said the two men had apparently tried to cover earlier losses in the futures market by increasing the company’s positions. In addition, the company has an employee bonus system tied to profits, he said.
Enron Oil, formed as an international petroleum marketing unit in 1984, had earned $50 million over the last two and a half years, the company said. The division employs 28 people in its White Plains, London and Singapore offices.
The Enron Corporation, which is based in Houston, is involved in energy exploration, transmission and marketing worldwide. The company, with nearly $8 billion in assets, operates the largest natural gas pipeline system in the country.
Mr. Lay said that the company discovered the improper trades on Oct. 9, three days before a scheduled audit of the division, and that the company had liquidated virtually its entire trading position since then. In a meeting Wednesday night in New York, Enron’s board voted to disband the unit. It gave no reasons other than the trading problem.