The former COO of Enron Broadband Services (EBS) pleaded guilty Tuesday in U.S. District Court in Houston to one count of conspiracy to commit wire and securities fraud. Kevin Hannon 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 Corp. executives.
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 Daily GPI, May 2, 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 (see Daily GPI, Sept. 4, 2001).
According to the plea agreement, Hannon took part in a January 2001 analyst conference 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.
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