Money Laundering—Enron Broadband

Five former executives of Enron Broadband have been re-indicted in Houston.^[1] Earlier this year, the five were on trial for more than three months, but the case ended largely in a mistrial with the jury failing to fully exonerate any defendant but also unable to find any defendant guilty.^[2] The original case accused all five men for conspiracy to profit by deceiving shareholders and Wall Street about the value of the broadband division, but the new indictments have reduced the number of charges the men face.^[3]

Former executive Scott Yeager, who was acquitted of all fraud and conspiracy charges, is now charged with five counts of insider trading and eight counts of money laundering.^[4] There is a motion before US District Judge Vanessa Gilmore to bar the government from reindicting him because he argues that the case against him is “constructively destroyed” by his previous acquittals; Judge Gilmore has not yet ruled on that motion, but did set his new trial for June.^[5]

In a separate indictment, Joe Hirko—the former co-CEO of the broadband division—and Rex Shelby—the former senior vice president of engineering and operations—are accused of conspiracy to commit wire and securities fraud, as well as multiple counts of wire and securities fraud and insider trading.^[6] Mr. Hirko was originally acquitted on some insider trading and money laundering charges, while Mr. Shelby was acquitted on some insider trading charges; the jury was deadlocked on other conspiracy, fraud, and money laundering charges.^[7] Mssrs. Hirko and Shelby are scheduled to go on trial in September.

The final indictment accuses Kevin Howard—the former CFO—and Michael Krautz—the former senior accounting director—on charges that they conspired to commit wire fraud and to falsify books and records, three counts of wire fraud, and one count of falsifying books and records.^[8] The original jury deadlocked on conspiracy and fraud charges based on allegations that they designed a fake sale of video-on-demand profits to falsely inflate earnings; they are expected to go on trial in May, but there may be a continuance for them since the trial of Ken Lay, Jeff Skilling and Rick Causey is expected to get under way in May.^[9]

Insider Trading
Insider trading is covered by 15 U.S.C. § 78j which states that it is a crime for any person to use or employ any manipulative or deceptive device or contrivance in contravention of rules promulgated by the Securities and Exchange Commission.^[10]

Any person who willfully violates any provision of 15 U.S.C. § 78a et seq. can be punished by a fine of up to $5 million, imprisonment for up to 20 years, or both.^[11]

Money Laundering
We have previously discussed money laundering under 18 U.S.C. § 1957, here.

Wire Fraud
Under 18 U.S.C. § 1343, it is a crime for a person to devise a scheme or artifice to defraud, and then use the nation’s telecommunications systems to carry out that fraud. A violation of section 1343 can be punished with a fine, imprisonment for up to 20 years or both.

Conspiracy to Commit Wire Fraud
Conspiracy to commit wire fraud is covered by 18 U.S.C. § 1349, which states that any conspiracy to commit wire fraud will be punished as if the offense had actually been committed.

Securities Fraud
Securities fraud in this case is covered by 15 U.S.C. § 78j, which we discussed above.

Conspiracy
Under 18 U.S.C. § 371, it is a crime for a person, along with at least one other person, conspire to commit an offense against the United States, and then make an overt act in furtherance of that offense. The punishment for a violation of section 371 is a fine, imprisonment for up to 5 years, or both.

False Statements
Under 18 U.S.C. § 1001(a)(3), it is a crime for a person, in any matter within the executive branch, to knowingly and willfully make use of any false document knowing that it contains false or fraudulent information. A violation of this section can be punished by a fine, imprisonment for up to 5 years, or both.

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[1] Mary Flood, Five Former Enron Execs Reindicted, Houston Chronicle, Nov. 10, 2005, available here.
[2] Id.
[3] Id.
[4] Id.
[5] Id.
[6] Id.
[7] Id.
[8] Id.
[9] Id.
[10] 15 U.S.C. § 78j(b).
[11] 15 U.S.C. § 78ff(a).