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.
