Thursday, March 13, 2003

Enron executives face fraud charges

By Curt Anderson
The Associated Press

WASHINGTON - Federal prosecutors charged two Enron Corp. executives Wednesday with a scheme to generate false earnings through an Internet movie-on-demand service that flopped.

In a separate action Wednesday, the Commodity Futures Trading Commission charged Enron and a former vice president with manipulating natural gas and agricultural commodity prices.

Arrest warrants brought in Houston charge Kevin Howard and Michael Krautz with securities fraud, wire fraud, conspiracy and making false statements to FBI agents. Both are executives with Enron Broadband Services.

The two men, who still work for Enron, surrendered Wednesday morning to FBI agents.

The charges stem from an attempt by Enron, in partnership with the Blockbuster Inc. video outlet chain, to set up an Internet video-on-demand business using broadband technology.

An affidavit in federal court says that Enron claimed $111 million in profits from the venture in 2000 and 2001, when in fact no revenue was generated.

The crux of the indictment is that Enron secretly promised profits from the deal to outside investors, including a software firm in Beaverton, Ore., called nCube. These promises were left off of transaction documents and hidden from Enron's accountant, now-defunct Arthur Andersen.

The venture fell apart in March 2001 when Blockbuster pulled out.

The Commodity Futures Trading Commission charged in a complaint that Enron and former vice president Hunter S. Shively operated the Enron Online subsidiary as "an illegal futures exchange" and cited several instances of attempts to manipulate the natural gas market. The complaint also says Enron tried to offer an illegal agricultural futures contract involving a lumber deal. The CFTC complaint seeks unspecified monetary penalties and a court order barring such activity in the future.

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