Risk Management

Ex-Enron Broadband Exec Gets Two Years

In 2004, Kevin Hannon pleaded guilty to conspiracy to commit securities and wire fraud.
Stephen TaubJune 4, 2007

Facing a possible five years in prison, Kevin Hannon, the former chief operating officer of Enron Broadband Services, was sentenced to two years for his role in the collapse of the one-time energy giant, according to the Associated Press.

During the trial of Enron founder Kenneth Lay and former chief executive Jeffrey Skilling, Hannon reportedly testified that when a small analyst firm began questioning Enron’s finances at a May 2001 meeting with top executives, Skilling said, “They’re on to us.” Hannon later claimed that the remark might have been delivered sarcastically by Skilling, who was upset with short sellers, the AP reported.

In 2004, Hannon pleaded guilty to conspiracy to commit securities and wire fraud. Under his plea deal, he agreed to cooperate with the Enron Task Force’s criminal investigation into the collapse of Enron. He also agreed to forfeit about $2.2 million to the government to be used to compensate victims of the Enron fraud.

Hannon was 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 $1 million fine.

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, according to the 2004 announcement about his plea deal.

Hannon admitted, for instance, that by highlighting individual customers at a 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, according to the U.S. Department of Justice.