Enron in broadband scam

Enron in broadband scam

Two Enron executives are on the wrong side of the law. Late last week indictments were issued by a federal grand jury in the US to Kevin Howard and Michael Krautz. They were indicted for fake revenues from Enron's broadband video on demand division.

In April 2000 Enron signed a 20 year deal with video hire retailers Blockbuster to provide a streamed video service to US homes by December of that year. At the time of the deal, it is reported that Enron claimed that the broadband market would lead to high profits, which in turn pushed up Enron's stock price. The deal never made any money and was terminated in March 2001.

The federal grand jury indictment claims that the broadband venture created US$111 million in fake revenue for Enron. Investors were promised high future earnings from the Blockbuster deal in exchange for cash that Enron immediately booked towards earnings, Reuters reported. It is alleged that Enron then created a partnership where three per cent was owned by an Enron controlled entity. This allowed Enron to hide its debts, which eventually took the company down, and report profits to the stock market and retain a high stock price.

In reference to the movies and Blockbuster, the deal was dubbed "Project Braveheart".

Kevin Howard and Michael Krautz face a 19 count indictment for securities fraud for fraudulently helping Enron record earnings between the year 2000 and 2001 from the deal. At that time Mr Howard was the chief financial officer of Enron Broadband and Mr Krautz the senior director of accounting.

Amongst the charges are wire fraud, mail fraud and making false statements to the FBI and a charge of misleading Enron's accountants Andersen.

Mr Howard and Mr Krautz have been sacked by Enron. The federal grand jury have both men bail of $500,000. They are believed to be fighting the charges; if they fail they face 25 years in prison and fines of $1.75 million.

Related Articles:

Document disposal hits Enron

Andersen in the dock

Business Solution: