Risk & Compliance

Enron Broadband Trial Begins

Whatever happens in the Houston courtroom may foreshadow the outcome of the Lay, Causey, Skilling trial.
Stephen Taub and Dave CookApril 18, 2005

Jury selection begins today for five former employees of Enron Broadband Services (EBS). Two of them are former finance executives, and another was a finance executive earlier in his career; none of the names are likely to be familiar.

While Kenneth Lay, Jeffrey Skilling, and former Enron Corp. chief accounting officer Richard Causey don’t go on trial until January, however, the proceedings in the Houston courtroom of U.S. District Judge Vanessa Gilmore may foreshadow the continued success of the Enron Task Force.

The highest ranking EBS officer to go on trial today is former chief executive Joseph Hirko, according to the Associated Press. He joined Enron in 1997 when it bought Portland General Electric, where he had served as the top financial executive, became CEO of the unit in 1998, and resigned in July 2000. Hirko allegedly sold more than $70 million in stock several days following analyst meetings in 2000 and 2001, when executives promoted the company’s broadband network, the wire service added.

Former vice president of finance Kevin Howard and former senior director of transactional accounting Michael Krautz allegedly used accounting tricks to concoct $111 million in earnings in 2000 and 2001 from an unsuccessful video-on-demand business deal with Blockbuster Inc., reported the AP.

The other two EBS executives facing trial today are former senior vice president of strategic development F. Scott Yeager and former senior vice president of engineering operations Rex Shelby.

All five defendants face charges of wire fraud, securities fraud, and conspiracy to commit fraud, according to Texas Lawyer. Hirko, Yeager, and Shelby also face insider trading and money laundering charges.

This is “the most important Enron trial to date,” said attorney Dan Cogdell, who successfully represented Sheila Kahanek in the so-called Nigerian barge case, in which five other former Enron defendants were convicted last year “Whatever happens here is likely to be a harbinger of what’s going to happen the Lay, Causey, Skilling trial.”

Skilling may be paying especially close attention, according to the Associated Press; the former Enron Corp. chief executive faces more than 30 charges alleging that he knew EBS wasn’t all it was cracked up to be.

As for Lay: As CFO editor John Goff notes in the current installment of “Good Week/Bad Week,” attorneys for the Enron founder have made a big turnaround regarding the timing of a second case, involving Lay’s personal finances.