Rice Sentenced to Two Years for Securities Fraud

Kenneth Rice, the former CEO of Enron's flailing broadband unit was sentenced today to two years and three months in federal prison for lying about the division's capabilities to Wall Street analysts to increase buzz that would inflate the company's stock price.^[1]

Rice will pay a $50,000 fine and turn over more than $13 million in cash and property to the government as agreed when he pleaded guilty to securities fraud in 2004.^[2] The property includes a Ferrari, a Colorado vacation home and a platinum, and a diamond and sapphire necklace and bracelet set he bought for his now ex-wife.^[3]

Rice was specifically accused of telling analysts in 2000 and 2001 that the unit's bandwidth trading and fledgling broadband network were up and running when they still were in testing phases.^[4] The division, then hyped by CEO Jeff Skilling as a potential multibillion-dollar moneymaker, never made a profit and collapsed along with the rest of Enron in December 2001.^[5]

Rice had faced 42 criminal counts until he pleaded guilty to securities fraud and agreed to cooperate with prosecutors; he was the last to be sentenced of 15 ex-Enron executives who pleaded guilty to crimes.^[6]

Rice testified for the government in two trials — that of the other five broadband defendants in April 2005, and again in Skilling's fraud and conspiracy trial last year.^[7] In the 2005 broadband trial, Rice implicated four of those defendants as well as Skilling in lying to Wall Street to inflate company stock.^[8] He stated that executives knew Wall Street might question Enron's launch of a broadband division when the company was known for trading and pipelines, "Mr. Skilling liked to address issues head-on.^[9] We addressed that concern by lying about the capabilities we already had on our network,” Rice asserted.^[10]

To prove a federal criminal securities fraud case, the government must prove beyond a reasonable doubt that: 1)the defendant used a device or scheme to defraud someone, made an untrue statement of a material fact, or failed to disclose a material fact which resulted in making the defendant's statements misleading; 2) the defendant's acts were, or failure to disclose was, in connection with the purchase or sale of securities; the defendant used the mail or telephone in connection with these acts or this failure to disclose; and the defendant acted for the purpose of defrauding buyers or sellers of securities.^[11] If the government successfully convicts the defendant on securities fraud charges, the defendant can be fined up to $1,000,000 (up to $5,000,000 if a corporation), imprisoned for up to 10 years, or both.^[12]

We have previous written about Enron here.

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^[1] Kristen Hays, Former Enron executive gets 27 months in federal prison, Houston Chronicle, June 18, 2007, available at http://www.chron.com/disp/story.mpl/front/4898890.html (last visited June 18, 2007).
^[2] Id.
^[3] Id.
^[4] Id.
^[5] Id.
^[6] Id.
^[7] Id.
^[8] Id.
^[9] Id.
^[10] Id.
^[11] 15 U.S.C. §77a & 78a (2007).
^[12] Id.