The chief operating officer of Enron Corp.'s failed Internet unit pleaded guilty yesterday to a single criminal conspiracy charge and agreed to cooperate with the government, as prosecutors continued to build their case against the Houston energy company's top leaders.
Kevin P. Hannon, 44, knowingly misrepresented the health of the fledgling Internet business in 2000 and 2001 "to justify representations by senior management" and "to maintain the improperly inflated price of Enron stock," according to his plea agreement.
Hannon faces up to five years in prison on the conspiracy to commit securities fraud charge. As part of the plea deal, he agreed to forfeit his claim on $8 million in back pay. Hannon also settled civil charges lodged by the Securities and Exchange Commission by turning over $2.2 million in assets and paying a $1 million penalty. The SEC barred Hannon from ever again serving as an officer or director of a public company.
Enron poured more than $1 billion into developing its Broadband Services unit and former chief executive Jeffrey K. Skilling touted it highly in analyst conferences during the height of the Internet boom. But prosecutors now claim that aside from accounting trickery, the broadband division never turned a profit.
Yesterday's plea agreement centers in part on a Jan. 25, 2001, analysts' conference in which Hannon and others -- including Skilling -- portrayed Enron Broadband Services as a "commercial and business success," according to court papers. In reality, Hannon said, the unit had failed to draw a strong customer base and to develop a sustainable revenue stream.
His Washington-based lawyer, Reid M. Figel, did not return calls.
Skilling has pleaded not guilty to nearly three dozen fraud and conspiracy charges. Longtime chairman Kenneth L. Lay, who took over day-to-day control of Enron after Skilling abruptly resigned in August 2001, has pleaded not guilty to 11 conspiracy, bank fraud and false statement charges.
Hannon's plea follows a deal struck last month by his onetime boss, former broadband chief executive Kenneth D. Rice, who pleaded guilty to one count of securities fraud and agreed to cooperate with the Justice Department's Enron Task Force.
"I don't care how many people the task force pressures into taking deals to induce their cooperation," said Daniel M. Petrocelli, the lead trial counsel for Skilling. "It doesn't change the fact that Jeff Skilling is completely innocent. The task force knows it, and that is why they feel the need to make so many dubious deals with these alleged cooperators."
Rice, Hannon and five other broadband officials were scheduled to face trial Oct. 4. But recent guilty pleas and other nagging legal issues have introduced a level of uncertainty to that timeline.
Lawyers for the other broadband defendants -- former co-chief executive Joseph Hirko, vice president of finance Kevin Howard, accountant Michael Krautz and technical experts Scott Yeager and Rex T. Shelby -- are due in court today for a hearing to address their request for more time to prepare for trial.