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Monday, 5 August, 2002, 18:39 GMT 19:39 UK
Former exec sues Dynegy for sacking
Dynegy headquarters building, central Houston
Dynegy's woes follow those of neighbour Enron
A former senior vice president at Houston-based energy-firm Dynegy has accused the company of trying to force him to cook the books.

Bradley Farnsworth, former controller at Dynegy, has filed a lawsuit against his previous employer for allegedly dismissing him after he refused to alter the accounting of natural-gas trading in the UK.

Mr Farnsworth registered his complaint in Houston state district court on Friday.

The energy-trading giant, once seen as a saviour for scandal-ridden Enron, has itself dissolved to near bankruptcy, following an investigation into its accounting by the Securities and Exchange Commission (SEC).

Dynegy on Sunday emphatically denied Mr Farnsworth's claims and promised to contest the suit.

"Mr Farnsworth's allegations are a disingenuous effort on the part of the plaintiff and his counsel to exploit Dynegy's current circumstances for financial gain," the company said.

'Short' position

Mr Farnsworth, who was responsible for Dynegy's day-to-day accounts, alleges he was asked to perform the questionable accounting by Dynegy's president and chief operating officer, Steve Bergstrom.

In March 2000, the complaint reads, Mr Farnsworth warned his boss about "short" positions the firm had in gas and power contracts.


We're really asking the question whether the word legitimate - or the concept of legitimacy - even came up

Steve Milner, CPA
Such short positions usually allow the holder of the option contract to benefit from falling commodity prices.

Mr Farnsworth warned that even though Dynegy stood to gain if gas or power prices fell, the energy trader had also put itself at substantial risk if prices for both rose simultaneously, according to the complaint.

And rise they did.

Government investigation

About a month after Mr Farnsworth alleges he warned Mr Bergstrom of the possible loss-making investment, rising costs for the gas and electric resulted in "significant financial losses to the company, which violated the company's established risk limits," the lawsuit says.

Throughout the summer, the losses mounted.

By August, the suit alleges, "Bergstrom specifically asked that the plaintiff 'shave' or reduce for accounting purposes" the projected gas prices for the six months from October 2000 through March 2001.

After he refused to do so, Mr Farnsworth alleges he was kept from routine meetings on profits and eventually fired.

He was sacked because "he wouldn't play ball" lawyer Philip Hilder told the Houston Chronicle newspaper.

Debatable demand

But even if Dynegy's president acted in such a way, it does not mean he did anything illegal, says Steve Milner, managing partner at Squar Milner, a California financial-advisory firm that performs audits.

There is nothing necessarily wrong about Dynegy senior management asking questions or pressuring finance officials to deliver a better profits picture, he says.

"We're really asking the question whether the word legitimate - or the concept of legitimacy - even came up," Mr Milner said.

Investigation

The SEC and the US attorney's office in Houston are investigating Dynegy's accounting for "Project Alpha", a complex accounting scheme that distorted the firm's balance sheet.

It is not known if Mr Farnsworth has talked with government investigators.

News of yet another energy trader to come under government scrutiny drove energy shares sharply lower on Monday.

Atlanta-based Mirant said on Monday that it was the subject of an informal SEC investigation into its accounting.

In New York Stock Exchange trading, shares of Dynegy were substantially lower - down 20% - as investors reacted to Mirant's disclosure.


Politics of regulation

Worldcom goes bust

Enron fall-out

Andersen laid low

FORUM
See also:

30 Jul 02 | Business
20 Jun 02 | Business
28 May 02 | Business
09 May 02 | Business
30 Jul 02 | Business
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