Two former Enron Corp executives have been charged with fraud for using accounting tricks to generate US$111 million in fake earnings from the bankrupt energy trader's failed attempt to start an Internet movie-on-demand service.
Kevin Howard, 40, and Michael Krautz, 34, were still Enron employees when they surrendered to the FBI and were taken to the courthouse in handcuffs Wednesday morning. They were later freed on US$500,000 bond, and by the end of the day were "no longer with the company," Enron spokeswoman Karen Denne said. She declined to say whether the pair quit or had been fired.
Both men were charged with securities fraud, wire fraud, conspiracy and lying to the FBI. The Securities and Exchange Commission also charged them with falsifying records and quarterly reports for a transaction that was "a sham from its inception."
"The victims in the fraud are primarily investors who made investments in Enron Corp relying on the financial statements of the company, which turned out to have a large volume of earnings that were achieved through fraud," federal prosecutor John Kroger said Wednesday.
Krautz and his attorney left the courthouse without comment. Howard stood by silently while his lawyer, Jim Lavine, said his client had done nothing wrong and would fight the charges "with every breath that he's got."
The charges stem from an attempt by Enron and the video chain Blockbuster Inc to set up the video-on-demand business using broadband technology in a transaction dubbed "Braveheart." At the time, Howard and Krautz worked for the now-defunct Enron Broadband Services unit.
Prosecutors say Enron secretly promised profits from the deal to outside investors. Those pledges were omitted from transaction documents and hidden from Enron's accountant, Arthur Andersen LLP. The deal was announced in April 2000 and fell apart 11 months later when Blockbuster pulled out.
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