June 1, 2006
Jury Reaches Split Verdict in First Enron Broadband Retrial
The jury in the lesser-known Enron Broadband retrial reached a split verdict, convicting one defendant and acquitting the other on conspiracy, false accounting entry, and wire fraud charges. The first trial, which involved five executives of the Enron unit that was supposed to be the company's foothold in the then-burgeoning dot-com world, ended in the acquittal of defendants on some counts and a hung jury on others. Prosecutors from the Enron Task Force then split the case into three parts, and the first retrial involved Kevin Howard, the unit's finance chief who was convicted on all five counts, and Michael Krautz, its accounting officer who was acquitted (indictment here). The charges revolved around the "Project Braveheart" transaction -- they had such cute names for their accounting legerdemain at Enron -- that the government alleged was designed to pump up the Broadband unit's earnings through the "sale" of its future earnings. The Braveheart transaction was part of a broader effort in 2000 and 2001 to help Enron meet its earnings targets and mask problems at the company, an issue that was key to the convictions of former CEOs Ken Lay and Jeffrey Skilling just a week earlier. While the first Broadband trial took three months, the government went with a slimmed-down version the second time that only took a month to present, largely avoiding the mind-numbing details and technical jargon that nearly left the first jury comatose.
Interestingly, the two Enron trials took place in adjoining courtrooms in Houston, and the juries in the two cases deliberated next to each other. U.S. District Judge Vanessa Gilmore rejected a defense request to poll the jury about whether they were aware of the verdict in the Lay/Skilling trial, although it is hard to believe that they did not notice the frenzy that verdict triggered on May 25. That will likely be one of the appellate issues raised by Howard.
Howard's likely sentence is hard to predict because, just like the sentencing of Lay and Skilling, a key issue will be loss, but here the calculation is much more complicated. The Enron Broadband unit was a small slice of a much larger company, and the effect of the transactions at issue on the company and its investors will be hard to estimate. The case is similar to the Enron Nigerian Barge trial, which involved a single transaction designed to help Enron's year-end earnings, and the prosecution of Jamie Olis for an earnings-related tax deal at Dynegy, an Enron competitor. Olis awaits resentencing after initially receiving a 24-year prison term, while the Nigerian Barge defendants received sentences from over two years to fours years. The violations outlined in the indictment all occurred before November 1, 2001, when the Federal Sentencing Guidelines provisions for economic crimes were increased, so Howard may receive a small benefit from a lower Guidelines sentencing calculation, if Judge Gilmore relies on them in fashioning the sentence. Sentencing is set for September 11, 2006, the same day as Lay and Skilling if the schedule holds.
There are two more indictments yet to be tried involving Broadband executives, and the Houston Chronicle has an excellent summary of the defendants and charges (here) . An AP story (here) discusses the verdict in the first retrial. (ph -- thanks to Tom Kirkendall for pointing out the correct U.S. Distict Judge who presided at the trial)
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