Risk & Compliance

Ex-Enron Division Chief Pleads Guilty

Admits to false and misleading statements intended to convince the public that Enron Broadband Services was a ''thriving telecommunications busines...
Craig SchneiderAugust 3, 2004

Kenneth Rice, the former chief executive officer of Enron Corp.’s high-speed Internet division, pleaded guilty on Friday to charges of securities fraud and agreed to cooperate with prosecutors, according to several news accounts.

In 2003, reported the Associated Press, Rice was charged with selling 1.2 million shares of Enron stock for more than $76 million while he knew Enron Broadband Services (EBS) was failing. He had faced a total of more than 40 counts, including fraud, conspiracy, and making false statements to inflate the value of the company’s stock.

As part of his plea agreement, Rice admitted that in analyst conferences and in press releases during 2000 and 2001, he and other EBS executives made false and misleading statements about the division’s condition and performance. “The purpose in making these misrepresentations,” he said, according to The Wall Street Journal, “was to falsely portray to the investing public that EBS was a thriving telecommunications business.”

Rice’s cooperation is expected to aid prosecutors in their case against former Enron chairman Kenneth Lay, former chief executive officer Jeffrey Skilling, and former chief accounting officer Richard Causey. The optimistic statements to analysts and investors about finances of the broadband unit — at a time when executives knew of the unit’s losses — were reportedly referenced in Skilling’s indictment. Lay, Skilling, and Causey have pleaded not guilty; no trial date has been set.

The former divisional chief had been scheduled to go to trial in October with other Enron Broadband employees — Rex Shelby, F. Scott Yeager, Kevin Hannon, Michael Krautz, Kevin Howard, and the division’s former co-CEO Joseph Hirko — who have pleaded not guilty. Rice “can explain what went on behind closed doors and put meat on what happened in documents,” said Philip Hilder, a lawyer who represents Enron whistle-blower Sherron Watkins, according to The Washington Post. “It’s quite significant because he can go both up and down the ladder.”

Rice, who is free on a $3 million bond, will be sentenced on January 31, according to Bloomberg. He faces up to 10 years in prison and 3 years’ probation.

In settling a parallel civil action brought by the Securities and Exchange Commission, Rice agreed “to pay disgorgement and a civil penalty totaling more than $14.7 million and to cooperate with the government’s continuing investigation,” according to the SEC. Rice, without admitting or denying the commission’s charges, also agreed to be permanently barred from serving as an officer or director of a public company.