Enron has power stations throughout the world
The admission is an attempt to calm the hail of criticism which has been directed at the firm after mysterious charges aroused suspicion in its latest balance sheet.
Enron has now sacked both its treasurer and the general counsel of one of its divisions, who - it said - had a hand in the suspect dealings.
Enron's balance sheets - part of the reason that the firm won a host of corporate awards - are now being investigated by the US financial watchdog.
Resorting to takeover?
The admission may help clear the air while it discusses a possible takeover by US rival Dynegy.
Such a deal, valued at about $8bn, would represent a major coup for Dynegy, which is more or less a smaller version of Enron.
Analysts say Dynegy is seen to have mirrored the fast, aggressive growth, policies and style of Enron, but has always remained firmly in its shadow.
The two companies both offer a sophisticated electronic trading platform for oil, natural gas and other commodities.
Still open season
Dynegy is refusing to discuss the terms of the proposed deal, but an announcement is expected in the next few days.
A spokesman said the company would not be making any further comment until a deal is finalised.
According to sources quoted by Reuters news agency, a deal with Dynegy would involve a stock swap and $1.5bn in capital from Chevron/Texaco, which owns 27% of Dynegy.
The deal would include a "modest premium" for Enron shareholders, who have seen their investment lose more than 80% during the last three years.
Unreliable
In a statement to the US Securities and Exchange Commission (SEC) - which launched an investigation into the off-the-books deals earlier this year - Enron said its financial statements from 1997 to the first half of 2001 "should not be relied upon".
The revised statements showed profits down by $596m, with debts about $628m higher than previously thought.
During the past month, analysts have criticised Enron's lack of transparency and its share price has plummeted 80%.
But the firm was once the darling of the stock markets, due to its extremely fast growth and transition from a natural gas pipeline firm to an international trading firm with revenues of over $100bn.