Wednesday, October 15, 2008

Former Chief Executive of Enron Broadband Services Pleads Guilty

According to the Associated Press, the former chief executive of Enron Broadband Services, Joseph Hirko, pleaded guilty on Tuesday to one count of wire fraud. The agreement requires Hirko to serve up to 16 months in prison and pay up to $8.7 million in restitution to the government for victims of the Enron collapse. He will also cooperate with prosecutors in other pending broadband prosecutions. Sentencing will occur on March 3, 2009.

As noted in the AP article, Hirko entered into the plea agreement because he did not want to risk the consequences of losing at trial. As has been discussed here previously (see this post regarding my recent article of plea bargaining in financial crimes cases after Enron), many individuals prosecuted for financial crimes following Enron agreed to enter plea bargains due, at least in part, to the existence of significant "sentencing differentials" between the sentence offered by the government in negotiations and the potential sentence resulting from losing at trial. It appears that Hirko, who pleaded guilty to only one count of wire fraud but faced wire fraud, securities fraud and insider trading charges if he proceeded to trial, also falls into this category.

A portion of the AP story is below.

[Hirko] admitted to allowing press releases to be distributed in 2000 that said a groundbreaking operating system had been embedded in Enron's broadband network that would allow users to pay only for bandwidth they used instead of a flat monthly fee.

The operating system was still under development and the bandwidth-on-demand feature never materialized. Hirko admitted that he knew broadband operating system, or BOS, hadn't been embedded and couldn't provide bandwidth on demand.

Per Ramfjord, one of Hirko's lawyers, said in Tuesday's online edition of the Houston Chronicle that the plea allowed him to "reduce the risk of going to trial and puts him in a position to be able to return to an active life as soon as possible."

A trial of Hirko and four other EBS executives ended in September 2005 with jurors unable to reach verdicts on most charges. Hirko was acquitted in the 2005 trial on 14 of the 27 charges against him, two of them for insider trading and 12 for money laundering. He was charged in a new indictment with wire fraud, securities fraud and insider trading.

Hirko had been set to go to trial in December alongside Rex Shelby, a former top software executive.

"Today's plea closes another chapter in the Enron scandal," Acting Assistant Attorney General Matthew Friedrich said in a news release.

Enron, once the nation's seventh-largest company, entered bankruptcy proceedings in December 2001 after years of accounting tricks could no longer hide billions in debt or make failing ventures appear profitable.

The collapse wiped out thousands of jobs, more than $60 billion in market value and more than $2 billion in pension plans.

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