New Fraud Charges Against Enron Broadband Services Execs

The Securities and Exchange Commission (SEC) filed an amended complaint charging five additional former executives of Enron Broadband Services (EBS) with fraud and personally reaping more than $150 million in unlawful profits. Among the false statements identified by the SEC was the claim that the Enron Intelligent Network (EIN) contained built-in intelligence - a software control layer called the "Broadband Operating System" (BOS) - that allowed it to perform more sophisticated applications than other networks. The SEC alleges that the BOS and its predecessor, InterAgent, did not work as Enron claimed and were not able to perform the broadband delivery applications the company was touting. Linda Chatman Thomsen, the SEC's Deputy Director of the Division of Enforcement, said that "at a point when Enron's touted groundbreaking broadband technology was little more than a concept - and its business model was not commercially viable - these defendants played important roles in perpetuating the fairy tale that Enron was capable of spinning straw - or more appropriately, fiber - into gold." Defendants include Kenneth D. Rice, former CEO of EBS; Joseph Hirko, another former CEO; Kevin P. Hannon, former COO; Rex T. Shelby, former Vice President, and F. Scott Yeager, former Vice President.


Separately, the Department of Justice filed additional charges against former Enron Chief Financial Officer Andrew Fastow, his wife and seven other Enron officials. The grand jury also returned a 218-count superseding indictment expanding charges relating to Enron's failed Internet division, Enron Broadband Services. Previously, two EBS executives, Kevin Howard and Michael Krautz, were indicted for their roles in a transaction that allegedly enabled Enron to book more than $100 million in fraudulent revenues. The new, 218-count indictment, which includes securities fraud, wire fraud and money laundering charges, alleges that Rice, Hirko, Hannon, Yeager and Shelby orchestrated a long-running scheme to defraud the investing public and others through a series of false statements and press releases that portrayed EBS as a resoundingly successful business. In fact, the company never got beyond the development stage. The indictment charges that the executives knew they were deceiving the public and that they deliberately sold large quantities of stock, generating nearly $186 million in proceeds for themselves.
http://www.sec.gov/news/press/2003-58.htmhttp://www.usdoj.gov/opa/pr/2003/May/03_crm_268.htm