Justice Department prosecutors charged seven former Enron executives with being part of a massive securities fraud in Houston Thursday.
The securities fraud charges, combined with new charges against Andrew Fastow, his wife and others, amount to the Enron Task Force’s biggest legal volley in its 15-month investigation of crimes at the Houston energy company. Nineteen people have been charged in connection with Enron’s collapse in 2001.
Among the new allegations:
The government accused seven top executives of Enron Broadband Services of running what amounted to a pump-and-dump stock scam on the investing public. According to the indictment, the seven men including Kevin Howard and Michael Krautz, who were charged in March deliberately sent out false statements about the broadband division’s earnings potential in 2000 and 2001. The group also hid the division’s losses from outsiders in that period, the government says.
In a related action, the Securities and Exchange Commission accused five of the seven Ken Rice, who headed Enron Broadband, and Joseph Hirko, Kevin Hannon, Scott Yeager and Rex Shelby of selling more than $150 million in Enron stock while they were allegedly misrepresenting the value of Enron Broadband.
”These defendants played important roles in perpetuating the fairy tale that Enron was capable of spinning straw or fiber into gold,” said Linda Chatman Thomsen, deputy director of enforcement at the SEC.
The second indictment, which supersedes one filed in October against former CFO Andrew Fastow, accuses Fastow, former treasurer Ben Glisan and another former executive, Dan Boyle, of using private partnerships to enrich themselves at the expense of Enron and its shareholders.
That indictment accuses the three men of making an arrangement with brokerage Merrill Lynch that allowed Enron to inflate its earnings through a sham sale of several Nigerian barges to Merrill in December 1999. Merrill is not facing criminal charges, but the SEC slapped it with civil charges and an $80 million fine in March.
The third indictment accuses Fastow’s wife, Lea Weingarten Fastow, of colluding in her husband’s efforts to profit from the partnerships and of filing false tax returns.
The indictments show prosecutors are now attacking the core of the Enron case: securities fraud. ”The fact that the Enron Task Force is now putting out the gut securities fraud charges suggests we’re in an endgame mode,” says Jacob Frenkel, a former federal prosecutor at Smith Gambrell & Russell.