Enron figure Hannon admits fraud

Former broadband executive's plea adds to pressure on higher-ups

September 01, 2004|By BLOOMBERG NEWS

HOUSTON - Former Enron Corp. executive Kevin Hannon pleaded guilty to fraud conspiracy yesterday, admitting that he helped senior executives misrepresent the value of the company's broadband services division.

Hannon, who was chief operating officer for Enron Broadband Services, agreed to work with prosecutors trying to convict other former Enron executives, including former Chief Executive Officer Jeffrey K. Skilling and former Chairman Kenneth L. Lay, after the collapse of the Texas energy trader.

Hannon said he helped unnamed executives present misleading information about the broadband unit at a 2001 conference in which Lay and Skilling participated.

"Now that Kevin Hannon has joined the ranks of cooperating defendants, those who are holding out are beginning to feel enormous pressure," said Christopher Bebel, a former federal prosecutor.

"The sooner they come to a deal with the government, the sweeter the terms are likely to be," Bebel said.

Hannon entered a guilty plea to one count of conspiracy to commit securities and wire fraud before U.S. District Judge Vanessa Gilmore. He agreed to pay a $250,000 fine and relinquish his claim to $8 million in deferred compensation from the company.

Hannon, 44, also pledged to cooperate with prosecutors in other Enron-related investigations, will surrender $2.2 million in assets and will pay a $1 million penalty to the Securities and Exchange Commission. Hannon, who faces as much as five years in prison, left the court without comment.

The unit "was portrayed as a developed business when, in reality, the company was still essentially in a start-up phase," he said in his agreement with prosecutors.

Company executives had promoted Enron Broadband Services, which was supposed to serve as a middleman for companies that wanted to move data over high-speed phone lines, as a way to take advantage of the Internet's expansion and bolster profit growth at the company.

At the conference on Jan. 25, 2001, Skilling touted the "enormous growth prospects" in the broadband business. In the same presentation, Lay said the company had achieved its goal of a "critical mass rollout of broadband services." He also boasted of the broadband unit's "good progress on the content side, including Blockbuster and the video-on-demand business, which was indeed a blockbuster deal."

With Hannon's plea, 15 former Enron officials have been convicted. Prosecutors have charged 32 people, including 23 executives, in connection with the company's collapse. His plea comes a month after former Enron broadband chief executive Kenneth Rice, 45, pleaded guilty to one count of securities fraud before Gilmore. Hannon reported to Rice.

Lay was indicted on fraud charges in July, and Skilling was indicted for fraud in February for his role in the accounting scandal that drove the Houston energy-trading company into bankruptcy and cost investors $68 billion in market value. Lay and Skilling deny any wrongdoing.

Five defendants in the broadband case, including another chief executive of the unit, Joseph Hirko, have pleaded not guilty and are free on bail.

Today, the judge is scheduled to hear defense motions to change the trial venue and to sever the remaining defendants' cases.

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