ATTENTION ALL POTENTIAL VICTIMS
United States v. Rex Shelby and Joseph Hirko – Court Docket Numbers: 3-093-4 and 3-093-7
(Appeal-5th Cir. 06-20691 and 06-20593) – Re-trial pending
Joseph Hirko, former co-chief executive officer of Enron Broadband Services (EBS), Enron’s failed telecommunications business, was sentenced on September 28, 2009 to sixteen months in prison, two years of supervised release and ordered to forfeit $7 million in (which will be applied to a restitution fund) on his October 14, 2008 guilty plea to one count of wire fraud contained in a seventh superseding indictment. As part of his plea agreement, Hirko agreed to cooperate fully with the government’s ongoing criminal prosecution of individuals at EBS. At sentencing, the remaining charges against Hirko were dismissed. Co-defendant Rex Shelby is awaiting trial on charges of conspiracy to commit wire and securities fraud, securities fraud, and insider trading. A pre-trial conference has been set in Shelby's case for November 23, 2009 at 9:30 a.m. before Judge Gilmore in Courtroom 9A, United States Courthouse, 515 Rusk Avenue, Houston, Texas.
In November 2004, Hirko along with six other EBS employees–Kenneth Rice, Kevin Hannon, Kevin Howard, Scott Yeager, Rex Shelby, and Michael Krautz–were indicted on various counts of conspiracy to commit securities and wire fraud, securities fraud, wire fraud, insider trading, and money laundering. Co-defendants Kenneth Rice, a former EBS chief executive officer (CEO), and Kevin Hannon, a former EBS chief operating officer, pleaded guilty in 2004. In July 2005, following a fourteen-week trial and four days of jury deliberations, the jury acquitted Hirko, Shelby, Howard, Krautz, and Yeager on some counts but could not reach a verdict on others. Following the court’s declaration of a mistrial, three separate superseding indictments were returned in November 2005 charging Hirko and Shelby, Howard and Krautz, and Yeager with various counts of conspiracy, securities and wire fraud, insider trading, and money laundering.
As described in the superseding indictment and the plea agreement, Hirko participated at Enron's annual analyst conference in Houston, Texas, at which Enron former CEO Jeffery Skilling introduced EBS as one of Enron’s "core" units. Enron also announced the development of a Broadband Operating System or "BOS." According to the plea agreement, the BOS was purported to be an “intelligent” operating system and was described as, among other things, a standard protocol for accessing real-time bandwidth.
As alleged in the superseding indictment, Enron issued a press release on May 15, 2000, announcing the acquisition of Warpspeed Communications. According to Hirko's guilty plea, the Warpspeed release falsely represented the status of the BOS and implied that it was already embedded and functioning as a part of Enron’s network. Specifically, the Warpspeed release stated that the BOS "allows application developers to dynamically provision bandwidth on demand for the end-to-end quality of service necessary to deliver broadband content." According to the plea statement, Hirko reviewed and approved this language even though the Warpspeed release contained material, inaccurate representations of the BOS’s status. In doing so, Hirko admitted that he acted with reckless indifference to the true facts, including: that the BOS was under development throughout his employment at Enron, was never embedded on Enron’s network, and could not dynamically provide bandwidth on demand or provide for the end-to-end quality of service necessary to deliver broadband content. According to the plea agreement, Hirko's approval of the Warpspeed release, as well as other press releases, assisted in maintaining Enron’s overall stock price, thereby improperly increasing the value of Hirko’s holdings of Enron stock.
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