Monday, May 2, 2005

Key Witness Testifies in Enron Broadband Services Prosecution

Flying largely under the radar, the Enron Broadband Services trial has been going on since mid-April, and the government's key witness, former  Broadband Services co-CEO Ken Rice, is now being cross-examined.  Rice and former Broadband Services Chief Operating Officer Kevin Hannon entered guilty pleas to one count of securities fraud and are cooperating in the prosecution of five former Broadband Services officers -- including Rice's former co-CEO Joe Hirko -- for securities fraud, wire fraud, conspiracy, and money laundering.  The allegations center around statements about the technology behind the Broadband Services division and its ability to create a market buying and selling broadband access, which was Enron's attempt to take advantage of the internet bubble that burst shortly before the company itself collapsed. 

Similar to the other trials of corporate executives for accounting and securities fraud, the government's case relies on the testimony of former executives who have agreed to cooperate in exchange for lighter sentences.  Among the cooperating executives have been former WorldCom CFO Scott Sullivan and the Five Guilty CFOs from HealthSouth, and next year's Enron conspiracy trial of former CEOs Ken Lay and Jeff Skilling will feature former CFO Andrew Fastow, who is sure to be portrayed as the architect of Enron's downfall.  Skilling even made a brief appearance in the courtroom the day Rice, an old friend, began his testimony.  Skilling was asked to leave because he is on one of the defendants' witness list, although I suspect he would assert his Fifth Amendment privilege if called to testify -- why give the prosecutors even a brief free preview of his testimony.

Rice testified against his fellow executives for four days, and has been cross-examined for two more, with more to come this week. On Friday, when asked if he would lie to the jury to help get a shorter sentence, Rice responded, "I wouldn't lie in this proceeding because it could result in going to prison for life if I did."  Rice also conceded that many statements made by the Broadband Services division were truthful, supporting the defense that no material misstatements were made.  The Houston Chronicle has continuing coverage of the trial here, including links to all the Enron indictments, plea agreements, plea agreement scorecards, etc. (here) (ph)

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