The former director of investor relations for Enron Corp. agreed to pay a $1.49 million fine to settle fraud charges, while the former COO of Enron Broadband Services (EBS) pleaded guilty to one count of conspiracy to commit wire and securities fraud last week, in the latest settlements with former executives at the bankrupt company.

Kevin Hannon, the ex-COO of EBS, agreed to forfeit $2.2 million and pay $1 million in civil fines, and he also agreed to cooperate with prosecutors in their ongoing case against former Enron executives. Mark Koenig, Enron’s former director of investor relations, settled with the SEC without admitting or denying the charges.

Hannon, who was scheduled for trial on Oct. 4, was indicted last year along with six others, including former CFO Andrew Fastow and his wife Lea Fastow, in a 221-count indictment for concealing poor earnings results in Enron’s broadband unit (see NGI, May 5, 2003). Hannon originally had been charged with conspiracy, money laundering and insider trading. He will be sentenced on Jan. 31, 2005, and he faces up to five years in prison. As part of the agreement with prosecutors, Hannon also agreed to give up outstanding claims against Enron for $8 million in compensation. Hannon remains free on $1 million bond.

Hannon was COO of EBS between January 2000 and June 2001, and he resigned from Enron in Sept. 2001, three months before the company declared bankruptcy.

According to the plea agreement, Hannon took part in a January 2001 analyst conference call where he and others conspired to hide EBS losses, and he lied about the unit’s performance. “Among other things, EBS was portrayed as a developed business when, in reality, the company was still essentially in a start-up phase and had encountered significant commercial and operational hurdles during the year 2000,” Hannon said in the plea agreement. Hannon sold $7.8 million in Enron stock in December 2000, just weeks before the conference call, the indictment said.

Kenneth Rice, who was Hannon’s boss and the former co-CEO of EBS, agreed to cooperate with prosecutors in July in exchange for a 10-year prison term and forfeiture and fines of $14.7 million. According to prosecutors, Hannon and Rice told analysts in the January 2001 conference call that the EBS unit was on target for earnings, but they hid the fact that all of the unit’s businesses were losing money. They also concealed the fact that a key agreement with Blockbuster to deliver videos across the Internet was in danger of collapsing, according to the indictment.

The SEC action against Koenig was brought in coordination with the U.S. Department of Justice Enron Task Force, which filed a related criminal charge against Koenig. He agreed to enter a guilty plea in connection with that charge and to cooperate with the government’s continuing investigation. As part of the settlement agreement, Koenig has been barred from serving as an officer or director of a public company. According to the SEC, Koenig participated in a scheme to defraud the public “when he disseminated and approved the dissemination of false and misleading information to the public about Enron’s business in earnings releases and analyst calls.”

Specifically, the SEC alleged that in Koenig’s role as director of investor relations and as an executive vice president, “Koenig was responsible for drafting and preparing portions of Enron’s earnings releases and analyst call scripts.” Koenig was responsible for reviewing and editing Enron’s 1Q, 2Q and 3Q 2001 earnings releases, and scripts for the March 23, 2001 analyst call and the 1Q, 2Q and 3Q 2001 analyst calls.

“During his efforts, Koenig learned specific information about Enron’s retail energy business unit, Enron Energy Service (EES), and its telecommunications business unit, Enron Broadband Services (EBS), revealing that EES and EBS were not the successful business units described in the earnings releases and scripts, and as described by Enron in the analyst calls. Nevertheless, Koenig did not correct the false and misleading information provided to analysts and investors in the earnings releases and analyst calls, and affirmatively made false and misleading statements about these two businesses during the calls,” the SEC said.

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