Up to 8 More Seen Charged in Enron Case
Up to 8 More Seen Charged in Enron Case
By C. Bryson Hull
Wednesday 30 April 2003
HOUSTON - Prosecutors are expected to unseal charges on Thursday against at least five former Enron Corp. ENRNQ.PK broadband executives, including the division's chief Ken Rice, on fraud-related charges, sources close to the case said on Wednesday.
The sources, who requested anonymity, added that prosecutors are also considering bringing charges at the same time against three former Enron finance executives including Lea Fastow, the wife of former chief Enron financial officer Andrew Fastow, and two others from the ousted CFO's global finance unit.
Those charges are said to relate to the intricate web of outside partnerships that Andrew Fastow created. He allegedly enriched himself, his family and close associates by tens of millions of dollars at Enron's expense. Andrew Fastow has already pleaded not guilty to a 78-count federal fraud indictment.
A spokesman for the Fastows declined to comment.
The five former Enron Broadband Services (EBS) employees are named in an indictment that is under seal at the federal courthouse in Houston, according to the sources.
The sources said the indictment is likely to be related to an existing fraud case against former EBS finance executives Michael Krautz and Kevin Howard. It may also focus on meetings in 2000 at which EBS executives touted broadband's ultimately non-existent profitability to Wall Street analysts.
The new broadband indictment includes charges against Rice, two other top executives and two technology executives at the unit, one of the sources said. A lawyer for Rice did not immediately return calls seeking comment.
SEVEN PREVIOUSLY CHARGED
Seven former Enron executives have already been charged or pleaded guilty in the fallout from Enron's spectacular collapse in December 2001 into what became one of the largest bankruptcies in U.S. history.
Fastow's wife, a former company executive, has long been seen as a prosecution target and was named in a property seizure case brought last August when her husband's top lieutenant, Michael Kopper, pleaded guilty to a series of fraud charges.
Kopper's cooperation with prosecutors was key in bringing the indictment against Andrew Fastow, who has pleaded not guilty. Prosecutors since early this year have said they were preparing a superseding indictment against him, and have hinted in court that it would include charges against others.
It was unclear whether charges against the other three would come in that indictment or separately, the sources said. It was possible that two would be charged in the superseding indictment and that Lea Fastow would be charged under a new indictment involving tax charges, the sources said.
Most of the defendants were expected to turn themselves in early on Thursday before being brought to the federal courthouse for initial appearances, according to the sources. It is possible that one defendant would, under an arrangement with prosecutors, surrender later than Thursday due to a family emergency, the sources said.
A special Enron grand jury handed the broadband indictments up to U.S. Magistrate Judge Marcia Crone on Tuesday, a development first reported in Wednesday's editions of the Houston Chronicle newspaper.
The original broadband case against Howard and Krautz alleges they used hyped projections about a video-on-demand joint venture with Blockbuster Inc. BBI.N in a scheme to boost Enron's earnings with $111 million in bogus revenue.
The two, who have pleaded not guilty, allegedly lured investors into a partnership that paid Enron cash for future profits from the deal even though the two men knew the technology behind the venture was not working.
Prosecutors allege that Howard presented an overview of the transaction, called "Project Braveheart," to Rice and EBS's chief operating officer, Kevin Hannon, in an April 2001 e-mail. The indictment identifies Hannon and Rice only by title and does not suggest they committed a crime.
Fastow's Wife Surrenders to Feds
Thursday 1 May 2003
More charges are added to the case against former Enron CFO Andrew Fastow. His wife, Lea Fastow, turns herself in.
WASHINGTON -- Former Enron Corp. chief financial officer Andrew Fastow faces 31 more charges and his wife and nine other former executives were indicted today on a host of fraud, insider trading and other counts.
Fastow now faces 109 charges related to the 2001 collapse of the Houston-based energy trading giant, according to new indictments unsealed in Houston. His wife, Lea Fastow, is charged with six counts, including money laundering conspiracy, filing false tax returns and conspiracy to commit wire fraud.
Mrs. Fastow, a former Enron assistant treasurer, walked into the Internal Revenue Service office in Houston early today and surrendered. Her husband dropped her off.
Seven former executives with an Internet division called Enron Broadband Services also were charged in the new indictments. They are accused of orchestrating a scheme to mislead investors through a series of false statements that portrayed the venture as successful.
In fact, prosecutors contend, EBS never generated any revenue and was abandoned by Enron shortly before the company filed for bankruptcy in December 2001.
The indictments allege that five of the former EBS executives sold large amounts of Enron stock while they knew the division was failing, bringing themselves some $186 million in profits. The government is seeking forfeiture of more than $100 million of those profits.
"Today's indictments are a significant milestone in our determined efforts to expose and punish the vast array of criminal conduct related to the collapse of Enron Corporation," said Deputy Attorney General Larry Thompson, who heads the Justice Department's Corporate Fraud Task Force.
The indictments bring to 19 the number of individuals charged in the Enron case, with six of those already entering guilty pleas. Thompson said the probe was far from over.
"The indictments today do not end, by any means, our investigation," he said.
Houston-based Enron was formed in 1985 by a merger of two natural gas pipeline companies. Through the 1990s, Enron transformed itself into a massive energy-trading house that collapsed in 2001 in a whirlwind of revelations of hidden debt, inflated profits and accounting tricks.
The bankruptcy, the second-largest in U.S. history, cost thousands of jobs and wiped out hundreds of millions of dollars in employees' pension investments.
Those named in the broadband services indictment are former EBS chairman and co-chief executive Kenneth Rice, former president and co-chief executive Joseph Hirko, former chief operating officer Kevin Hannon, and former senior vice presidents Scott Yeager and Rex Shelby. They are charged with securities fraud, wire fraud, and money laundering.
Rice, known at Enron for his love of fast, expensive cars, quit the company months before it went bankrupt, after selling $1.2 million shares of company stock for more than $76 million. He served as CEO of Enron's trading unit, then called Enron Capital and Trade, from June 1996 to June 1999. He then took the helm of the heavily touted broadband unit, which never earned the millions in profits Enron claimed it did.
Hirko was chairman and CEO of Enron Broadband before Rice. He left Enron in 2000 and is alleged to have sold 473,837 shares for $35.1 million from June 1996 to November 2001.
Hannon, operating officer at Enron Broadband, quit Enron in August 2001. Previously he was president of Enron's trading and commodities business. He is named in lawsuits that allege he profited from the sale of millions of dollars worth of stock. Prosecutors said all those charged today had agreed to turn themselves in and would be released on bond.
In addition to possible jail time and fines, Thompson said the government will attempt to freeze the defendants' assets and seek forfeiture of property purchased with allegedly ill-gotten profits, such as homes, jewelry and sports cars.
In a related action, the Securities and Exchange Commission filed suit against the five former broadband executives, charging them with civil fraud and insider trading that netted them more than $150 million in unlawful profits. In the lawsuit filed in federal court in Houston, the SEC wants the five men to have to pay back that money as well as unspecified fines.
The SEC previously had charged two other EBS executives, Kevin Howard and Michael Krautz, with falsifying records and quarterly reports for a sham transaction.
Howard and Krautz also are named in new counts in today's indictments. They had been charged previously for allegedly using accounting tricks to generate $111 million in fake earnings from EBS's failed Internet movie-on-demand service.
The new Fastow indictment also brings charges of securities fraud, insider trading, falsification of accounting records and tax fraud against two other Enron executives, former treasurer Ben Glisan and former finance executive Dan Boyle.
Glisan became Enron treasurer in March 2000 and earned $1 million in May 2000 on a March 2000 $5,826 investment in Fastow's Southampton Place partnership. He was fired from Enron in November 2001, and prosecutors have frozen $916,137 in a bank account in his name.
Mrs. Fastow is charged with conspiring to reap profits from Enron wind farms in a partnership known as RADR and, along with her husband, failing to report income to the Internal Revenue Service.
The Fastows worked at a Chicago bank before joining Enron in 1990. She was assistant treasurer when she left the company in 1997.
Names of the Fastows and their family foundation are on several bank accounts frozen by federal prosecutors before Fastow was indicted Oct. 31.
Andrew Fastow is free on $5 million bond. A status hearing in his case is scheduled for May 19.
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