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 2 Enron executives charged with fraud
Venture profit figure faked, prosecutors say
March 13, 2003
BY KRISTEN HAYS
ASSOCIATED PRESS
HOUSTON -- Federal prosecutors charged two Enron Corp. executives with
fraud Wednesday for allegedly participating in a scam that generated
$111 million in phantom earnings from an Internet movie-on-demand service
that later fell apart.
"
It was basically an accounting fraud scheme," prosecutor John Kroger
said.
Kevin Howard, 40, and Michael Krautz, 34, surrendered to the
FBI and were taken to the courthouse in handcuffs. They were
later freed
on $500,000
bond. Krautz and his lawyer left without comment while Howard's lawyer,
Jim Lavine, said his client had done nothing wrong. Both men
were charged with securities fraud, wire fraud, conspiracy
and lying to the FBI. The Securities and Exchange Commission
also charged
them with falsifying records and quarterly reports for a transaction
that was "a sham from its inception." Both still work for
the bankrupt energy trader. An Enron spokeswoman said the criminal
complaints would be reviewed and "appropriate
action" would be taken. The charges stem from an attempt by Enron
and the video chain Blockbuster Inc. to set up the video-on-demand
business using broadband technology.
At the time, Howard and Krautz both worked for the now-defunct Enron
Broadband Services unit. Prosecutors say Enron promised profits from
the deal to outside investors, promises that were left off transaction
documents and hidden from Enron's
accountant, Arthur Andersen LLP.
The SEC complaint described a computerized
skit presented at an Enron Broadband holiday party in December 2000
that joked about fraudulent
aspects of the video business. The complaint said Broadband's general
counsel ordered all copies of the presentation destroyed because
it "contained incriminating material." The
venture fell apart in March 2001 when Blockbuster pulled out. But
prosecutors say Enron still claimed $111 million in profits
from the venture in 2000
and 2001 when no revenue was generated.
Should the victims of Enron’s scandal be permitted
on the jury?
Enron Victims Want Billions From Andersen
NEW YORK — How much can Arthur Andersen pay to
settle claims that it botched the audit of collapsed energy
trader
Enron Corp.? A lot more than it is offering, Enron shareholders
believe, eying a settlement of up to $4 billion. "$750
million is too small, or we would have settled, wouldn't we?" said
a spokesman at one of the major investors suing Enron and Andersen.
Andersen reportedly offered that amount to Enron shareholders,
creditors and employees, who are gunning for cash from the
firm in a welter of lawsuits, saying Andersen contributed to
Enron's downfall.
The plaintiffs are looking to Andersen's
deep pockets for compensation as Enron offers little prospect
of making up for the billions of dollars it lost. "You
would expect somebody to low-ball you, straight out of the
gate," the spokesman said. "The general presumption
is that they can pay a good bit more than they have put on
the table."
The difficulty for plaintiffs is working out
how much Andersen can pay without going bust. Rough estimates
go up to about $4 billion. For starters, Andersen has about
$300 million to $500 million in insurance, industry insiders
say, drawing on a mixture of outside liability insurers and
a string of "captive" insurance vehicles it owns,
or partly owns, in Bermuda and other offshore havens. That
would be part of a $1 billion plus "war chest" set
aside to settle legal cases. On top of that, Andersen has about
$1.2 billion from its divorce from erstwhile consulting unit
Accenture , after a settlement in August 2000.
Then there is
cash amassed from the firm's $9 billion or so annual revenues,
plus the equity of Andersen's partners in the firm -- the
last level of wealth that might be tapped. About 20 percent
to 25
percent of annual revenues might go toward a suitable settlement,
one Enron shareholder told Reuters, putting the total at
$2 billion or more. Insurers may already have figured that
out
and thrown in the towel. Any settlement would usually involve
the firm's outside insurers, but with their limits smashed,
they may already have cut checks and walked away, avoiding
further legal costs, according to Rickard Jorgensen, a
specialist liability insurance agent in Maywood, New Jersey.
Andersen's
outside insurers, thought to include Lloyd's of London
insurance market [LOL.UL] and 15 or so U.S. carriers, have
not said anything
publicly about settlement talks.
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