Cooked Books Close on Former Enron Broadband Exec
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A Houston federal jury Wednesday afternoon found former Enron broadband executive Kevin Howard guilty of conspiracy, wire fraud and falsification of books and records.
Evidence presented during the trial testimony proved Howard deliberately circumvented accounting requirements and misled Arthur Andersen accountants over a video-on-demand (VOD) deal between Enron Broadband Services (EBS) and video rental chain Blockbuster.
The false accounting allowed Enron to fraudulently record $111 million in revenue in 2000 and 2001.
Howard, 43, the former CFO for EBS, faces up to five years in prison on the conspiracy charge and another 10 years for the records falsification count.
In addition, each of the three wire fraud counts carries up to five years of prison time.
Sentencing is scheduled for Sept. 11.
Co-defendant Michael Krautz, the former senior director of transaction reporting for EBS, was found not guilty on the same five counts.
In April 2000, EBS and Blockbuster signed a deal to stream VOD directly to consumers' homes. The service was not expected to produce any profits for a number of years.
Howard, though, created a structured financial transaction designed to allow EBS to immediately recognize anticipated future earnings from the Blockbuster deal.
Part of the scheme involved creating a joint venture to implement the Blockbuster contract with two investors -- nCube, a video technology firm, and Thunderbird, an investment fund controlled by Enron.
Howard then sold a portion of the joint venture, including the projected revenue from the Blockbuster deal, to the Canadian Imperial Bank of Commerce.
The transaction allowed Enron to record revenues of $53 million in the fourth quarter of 2000 and $58 million in the first quarter of 2001, representing the vast majority of EBS' reported revenues for both periods.
In fact, the Blockbuster contract generated no revenue for EBS and was terminated on March 9, 2001.