FOR IMMEDIATE RELEASE|
TUESDAY, AUGUST 31, 2004
TDD (202) 514-1888
FORMER ENRON BROADBAND CHIEF OPERATING OFFICER KENNETH HANNON PLEADS GUILTY TO CRIMINAL FRAUD CONSPIRACY
WASHINGTON, D.C. - Assistant Attorney General Christopher A. Wray of the Criminal Division, Enron Task Force Director Andrew Weissmann and Assistant Director Chris Swecker of the Federal Bureau of Investigation announced today that Kevin P. Hannon, the former Chief Operating Officer of Enron Broadband Services (“EBS”), a unit of now-defunct Enron Corp., has pleaded guilty to conspiracy to commit securities and wire fraud.
Hannon, 44, of Houston, Texas, entered the guilty plea today before Judge Vanessa Gilmore at U.S. District Court in Houston. As part of his plea, Hannon has agreed to cooperate fully and truthfully with the Enron Task Force’s ongoing criminal investigation into the collapse of Enron.
Hannon pleaded guilty to one count of conspiracy to commit securities and wire fraud, in violation of 18 U.S.C. § 371, 15 U.S.C. §§ 78j(b) and 78(ff), 17 C.F.R. §§ 240.10b-5 and 240.10b5-1, and 18 U.S.C. § 1343. Hannon is a defendant in an indictment pending before Judge Gilmore, which charged seven former Enron executives with a range of criminal conduct arising out of activities of EBS. On July 30, 2004, lead defendant Kenneth Rice pleaded guilty and agreed to cooperate. The case against the remaining five defendants is scheduled for trial on Oct. 4, 2004.
Hannon faces a maximum sentence of five years in prison and a fine of $250,000 or twice the loss. As part of the plea agreement, Hannon will forfeit approximately $2.2 million to the government, to be used to compensate victims of the Enron fraud. Hannon is also required to abandon his pending claim in the Enron bankruptcy for more than $8 million, and to pay the Securities and Exchange Commission an additional fine of $1 million.
The indictment and plea documents signed by Hannon state that while at EBS, Hannon and others made a series of false statements and material omissions about the products, services and business performance of EBS in order to mislead investors and others about the success of the company and to inflate artificially the price of Enron stock. As part of his plea agreement, Hannon admitted that while serving as EBS’s Chief Operating Officer, he conspired with others to portray falsely the success of EBS to the investing public.
Among other things, Hannon admitted that EBS was portrayed as a developed business when, in reality, the company was still in a start-up phase and had encountered significant commercial and operational hurdles during the year 2000. Hannon admitted, for instance, that by highlighting individual customers at the January 2001 Analyst Conference, he and others intentionally created the impression that EBS had successfully developed a market and a customer base for its products. EBS did not, however, possess an established customer base and it had yet to develop sustainable sources of
revenue, facts that Hannon and others did not disclose. Various speakers at the January 2001 Analyst Conference also claimed that the Broadband Operating System (“BOS”) network control software was operating on the EBS network, including the statement that the BOS was “up and running.” Speakers additionally stated that the BOS allowed the company to deliver a number of unique software features. In reality, as Hannon admitted, EBS had significantly changed its strategy with respect to the development of the BOS during the year 2000, and had not yet developed the comprehensive network control software that EBS claimed it possessed at the January 2000 Analyst Conference.
Enron, at one time the seventh-ranked company in the United States with stock trading as high as $80 per share in August 1999, filed for bankruptcy protection on Dec. 2, 2001 and its stock became virtually worthless.
The investigation into Enron’s collapse is being conducted by the Enron Task Force, a team of federal prosecutors within the Justice Department’s Criminal Division and agents from the FBI and the Internal Revenue Service Criminal Investigations Division. The Enron Task Force also has coordinated with and received considerable assistance from the Securities and Exchange Commission. The Enron Task Force is part of the President’s Corporate Fraud Task Force, created in July 2002 to investigate allegations of fraud and corruption at U.S. corporations.
To date, 32 defendants have been charged in connection with the work of the Enron Task Force, including 23 former Enron executives. With the plea today, 15 defendants have so far been convicted. The Enron Task Force has obtained more than $162 million in forfeiture for restitution to victims.
The Enron Task Force investigation is continuing.