Enron Prosecutions Intensify

The broadband operation, begun in 1999, included construction of a high-speed "intelligent" fiber-optic network and trading operations to swap access to Internet lines, along with a highly promoted venture with Blockbuster to deliver first-run movies via the Internet. Wall Street's excitement about Enron's broadband effort helped push its stock to record highs in late 2000.

The Securities and Exchange Commission, in a companion action yesterday, alleged that Rice and associates deliberately create false, exaggerated estimates of the broadband business's expected earnings. Rice knew in December 2000 that Enron had not met its commitments to Blockbuster and that the deal was likely to fail in March 2001, the SEC said. But that prospect was kept from analysts, the regulators said. The movie venture was called off that March and the broadband unit collapsed in the summer of 2001.

Enron, however, claimed a fraudulent $111 million profit from the movie venture in late 2000 and early 2001 by giving outside investors the right to the venture's future earnings in ways that violated accounting rules, prosecutors said. Without these profits, Enron would have missed its earnings target for 2000 by more than $50 million, the indictments said.

Linda C. Thomsen, the SEC's deputy director of enforcement, said yesterday: "These defendants played important roles in perpetuating the fairy tale that Enron was capable of spinning straw -- or more appropriately, fiber -- into gold."

Rice's attorney, William D. Dolan III, said his client did not break the law. "Citizens are presumed to be innocent despite all of the circus atmosphere," Dolan said.

Hannon's attorneys said in a statement that their client is innocent, as did Yeager's attorney, who called his client a "victim" in the case, Bloomberg News reported.

In its year-long investigation, the Justice Department has charged 18 people with crimes linked to Enron, the aggressive, innovative Houston energy company that set its sights on becoming "the world's best company." Its stock soared in the late 1990s, only to crumble late in 2001 after disclosures of Andrew Fastow's secretive partnership deals and admissions of accounting misstatements. The company filed for bankruptcy protection Dec. 2, 2001.

Andrew Fastow was charged with fraud, conspiracy and money laundering last Oct. 31. Yesterday's new indictment against him adds allegations that he benefited illegally from insider stock sales and that he conspired with his wife and others to receive illegal payments from several off-balance-sheet partnerships he created.

The Fastows were also charged yesterday with tax evasion. Prosecutors alleged that the Fastows received $62,850 in profits from a concealed loan in 1997 in an improper partnership designed to increase Enron's energy earnings. The Fastows allegedly tried to hide their loan by describing the income from it as a gift on their tax returns. The government also contends that the Fastows received $67,224 in kickbacks from a concealed investment in another Enron-backed partnership named Chewco. This income was not reported on their federal tax returns, prosecutors said.

"Lea Fastow is innocent," her lawyer, Nanci L. Clarence, said outside the federal courthouse in Houston. "Mrs. Fastow has done nothing wrong, and she had nothing to do with the fall of Enron. Mrs. Fastow is being charged in order to put pressure on her husband of 18 years, Andy Fastow. These tactics are unfair and unjust. These charges have no merit."

Former prosecutors said it is aggressive, but not uncommon, for the government to pursue criminal charges against spouses or family members of people who are suspected of engineering corporate frauds. "It's no secret the government would love Andrew Fastow to flip and give evidence against higher-ups at Enron," said Alan Vinegrad, a former U.S. attorney in Brooklyn and now a partner at Covington & Burling. "Indicting Fastow's wife is a way to turn up the heat on Fastow to cooperate."

For the government to strike a deal, Fastow "would have to have evidence . . . that would give them a prosecutable case against Ken Lay and Jeff Skilling," he said.

Also charged yesterday were former Enron treasurer Ben F. Glisan Jr. and Dan Boyle, a vice president on Andrew Fastow's staff. The initial Fastow indictment contended that former Enron chief accounting officer, Richard A. Causey, had collaborated with Fastow to guarantee that Fastow's outside partnerships would never lose money in their dealings with Enron. Causey was not mentioned in yesterday's actions.

The Justice Department alleged that Glisan and Boyle joined with Andrew Fastow in arranging for Merrill Lynch & Co. to purchase a $28 million interest in Enron electricity-generating barges in Nigeria. The transaction helped move the money-losing barge venture off Enron's financial books and created $12 million in fraudulent profits in 1999, the government said.

William Halldin, a spokesman for Merrill Lynch, said the firm is cooperating fully with ongoing investigations.

Special correspondent Aaron Katersky in Houston contributed to this report.