FOR IMMEDIATE RELEASE|
WEDNESDAY, MARCH 26, 2003
TDD (202) 514-1888
TWO ENRON BROADBAND EXECUTIVES INDICTED
FOR SECURITIES FRAUD, CONSPIRACY AND FALSE STATEMENTS
WASHINGTON, D.C. - A federal grand jury in Houston, Texas, today returned a 19-count indictment against Enron executives Kevin Howard and Michael Krautz stemming from their involvement in manufacturing $111 million in fraudulent revenue for Enron in the last quarter of 2000 and the first quarter of 2001.
According to the charges against Howard and Krautz, the revenue was generated from the improper "monetization" of Enron's contract with Blockbuster, Inc., the retail video store chain, to supply movies on demand to retail customers. The indictment charges Howard and Krautz with securities fraud, conspiracy to commit securities fraud and wire fraud, mail fraud and making false statements to FBI agents investigating Enron's financial collapse.
Howard and Krautz, both residents of Houston, Texas, were arrested March 12, 2003, based on the filing of a criminal complaint.
At the time of the fraud alleged in the indictment, Howard and Krautz were executives at Enron's telecommunications division, Enron Broadband Services, or "EBS." Howard was vice president of finance at EBS from approximately Aug. 1, 1999 to September 2001, while Krautz was senior director of transactional accounting at EBS from approximately Aug. 16, 1999 to Oct. 3, 2001.
According to the indictment, Howard and Krautz deliberately violated applicable accounting requirements and misled Arthur Andersen accountants in order to allow Enron to fraudulently record $111 million in revenue in 2000 and 2001. The revenue represented the proceeds of "Project Braveheart," which involved Enron's purported sale of a portion of the future revenue stream that supposedly would have been generated over the life of Enron's contract with Blockbuster. In fact, as the indictment alleges, the Blockbuster deal generated virtually no revenue for Enron and was canceled in March 2001. The indictment further alleges that Howard and Krautz lied to FBI agents when asked about the Braveheart transaction.
Howard and Krautz face the following maximum penalties for each count on which they are convicted:
For each violation of 15 U.S.C. Sections 78j(b) and 78ff (securities fraud): 10 years imprisonment and a $1 million fine;
For each violation of 18 U.S.C. Section 1343 (wire fraud): 5 years imprisonment and a $250,000 fine;
For each violation of 18 U.S.C. Section 371 (conspiracy): 5 years imprisonment and a $250,000 fine; and
For each violation of 18 U.S.C. Section 1001 (false statements): 5 years imprisonment and a $250,000 fine.
The Enron investigation is being led by the Enron Task Force, formed in January 2002 to investigate matters related to the collapse of Enron Corp., and overseen by President Bush's Corporate Fraud Task Force, headed by Deputy Attorney General Larry Thompson. The Enron task force consists of a team of federal prosecutors supervised by the Department's Criminal Division and agents from the FBI and the IRS Criminal Investigations Division. The task force also has coordinated with and received considerable assistance from the Securities and Exchange Commission.
The task force has brought several charges in the Enron investigation. Former Enron Chief Financial Officer Andrew S. Fastow was indicted by a federal grand jury in Houston on Oct. 31, 2002 on 78 counts of wire fraud, money laundering and conspiracy. In August 2002, former Enron finance executive Michael J. Kopper pleaded guilty to conspiracy to commit wire fraud and money laundering. Former Enron energy traders Timothy N. Belden and Jeffrey Richter pleaded guilty in October 2002 and February 2003, respectively, to conspiracy to commit fraud by manipulating energy prices in the California market, and are cooperating with the government's ongoing investigation. In September 2002, a federal grand jury in Houston returned an indictment charging three former British bankers with wire fraud in a scheme involving the Southampton special purpose entity. In addition, in November 2002 former Enron finance executive Larry Lawyer pleaded guilty to making and subscribing a false tax return and is also cooperating in the government's ongoing investigation.
The task force investigation is active and ongoing.