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Prosecutors Set To Charge More Enron Executives

May 1, 2003 | FT.COM

Federal prosecutors are expected as early as Thursday to bring charges against additional executives from Enron's Broadband Services division, including Ken Rice, the former head of the group.

The expected charges against Mr Rice are significant because he was a top lieutenant of Jeff Skilling, the Houston energy company's former chief executive, and may ultimately be convinced to help prosecutors work their way up the company's executive ladder.

Enron Broadband was launched with great fanfare by the company in the late 1990s at the height of the internet boom. The company was supposed to serve as a hub for trading internet capacity. It also planned to transmit home movies to consumers under a much-heralded deal it had signed with the Blockbuster chain.

But Broadband was never profitable, and was closed down just months after the Blockbuster agreement was announced.

Two executives from the division were arrested in March and charged with falsely inflating earnings there by $111m. In that case, Kevin Howard and Michael Krautz, were accused of using off-shore partnerships to book more than $100m of revenue from the Blockbuster partnership that was not expected to materialise for years.

Mr Rice could not be reached for comment on Wednesday. The Justice Department declined to comment on the latest charges.

Investigators have shown interest in conference calls Enron used to promote Broadband in January 2000 and 2001, according to people familiar with the probe. On those calls, Mr Skilling and other executives claimed that the fledgling Broadband would be the future of the company and deserved a high valuation. The share price received a particular boost when the Blockbuster deal was unveiled.

Securities lawyers following the case believe this may have constituted securities fraud if Enron executives made these claims while they knew the division was in trouble.

"Those statements were deceptive and misled the investing public because of the caveats that were not conveyed," said Chris Bebel, a former government prosecutor.

Mr Rice came from a small group of executives who were highly loyal to Mr Skilling. He worked on Mr Skilling's so-called Gas Bank, one of the former chief executive's earliest successes at Enron, and then helped him build the company's power trading operation.

Mr Rice was known for his collection of Ferraris, which he raced in amateur competitions.

It is unclear how effective the latest charges will be in helping prosecutors make cases against Enron's inner circle.

In the past, they won cooperation from executives in the company's finance department, which led to an indictment of Andrew Fastow, the former chief financial officer. But Mr Fastow, despite the weight of the charges against him, has not agreed to cooperate. Their pursuit of Ken Lay, the former chairman, on possible insider trading charges, has also stalled.

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