Former Enron Execs Acquitted

A federal court jury Wednesday acquitted three former Enron Corp. broadband executives of some charges but deadlocked on the remaining charges involving them and two other executives.

The five were on trial for their alleged roles in making the washout broadband venture appear strong to investors and Wall Street to pump up the company's stock price.

U.S. District Judge Vanessa Gilmore declined requests from attorneys to identify the nature of the jury split. She issued an order barring jurors from discussing the case, which she said would have to be retried.

Former broadband CEO Joseph Hirko was acquitted on insider trading and money laundering counts, and former strategist Scott Yeager was acquitted of conspiracy and security and wire fraud counts. In addition, software engineer Rex Shelby was acquitted of insider trading.

The jury of 10 men and two women, which deliberated four days and was considering 164 counts, also was unable to reach a verdict on any counts involving former finance chief Kevin Howard and in-house accountant Michael Krautz.

Former Enron CEO Jeffrey Skilling, set for trial in January alongside Enron founder Kenneth Lay and former chief accounting officer Richard Causey, also faces charges that he lied to Wall Street about the broadband unit's capabilities and value.

While there were no guilty verdicts, the outcome did not exonerate the five defendants.

"I feel very comfortable with the not guilty," Tony Canales, Yeager's lawyer, said. "Everybody should. The government did not get a single guilty."

"After three months, the jury didn't find guilt," Barry Pollack, Krautz's lawyer said. "That tells us something of the government's use of its resources in this case."

Federal prosecutor Cliff Stricklin implored Gilmore to order the jury to resume deliberations Thursday, saying four days of discussions was not enough given the complexity of the case and the huge amount of evidence delivered to jurors after three months of testimony.

"No doubt this case will have to be retried," he told the judge.

Gilmore said she agreed the four-day deliberation time seemed short, but she declined to bring the jury back for more talks.

Prosecutors left the courtroom without comment.

"What can you say?" said Ed Tomko, whose client, Shelby, was acquitted on four counts of insider trading, but had 16 others result in no verdict. "We're disappointed to have spent 12 weeks and an amount of money and wind up with a verdict that is confusing. It doesn't make any sense. Obviously they could not reach a unanimous verdict on most of the major counts."

The two schemes that came together in the trial that began April 18 focused on technology and finance.

On the technology side Hirko, Yeager and Shelby were accused of conspiring with others to lie to Wall Street analysts and investors about the status of Enron's broadband network and operating software so they could pocket millions of dollars from sales of hype-inflated stock.

Often tedious, technology acronym-filled testimony boiled down to what worked when and whether it was touted in future or present tense to analysts who influenced Enron's stock price at a January 2000 conference in Houston.

Prosecution witnesses included former top technology executives who said the network was in disarray and its operating system — touted as a feature that would slay competitors in the then-burgeoning industry — was in its embryonic testing stages.

The government's marquee witness was former broadband unit CEO Kenneth Rice, who pleaded guilty to securities fraud last year. Rice testified for a week and a half that he, Hirko, Yeager, Shelby and Skilling knew the network and operating system didn't live up to the hype.

Other witnesses included a staffer who said the operating system was internally known as "pixie dust" or "secret sauce" and a former software sales executive who sold all the Enron stock he could upon quitting before the analyst conference, convinced Wall Street would see through the lies and the share price would plummet.

The opposite happened. Within two days of the conference, Enron's stock price leaped to $72 a share from $54.

Hirko, Yeager and Shelby all testified, and they as well as other defense witnesses said they didn't lie and early phases of the network and its operating system were working at the time of the conference with more sophisticated versions slated to be rolled out later.

On the finance side, prosecutors presented witnesses who said Howard and Krautz broke accounting rules in a loan disguised as a sale to investors of future revenues from a video-on-demand deal so the broadband unit could book immediate income. That deal, dubbed "Project Braveheart," allowed the broadband unit to limit losses to the $60 million Skilling in January 2000 told analysts to expect.

The government alleged the sale was a sham because investors had been promised they would be bought out and wouldn't lose money. However, an Oregon technology company that allegedly got that promise wasn't bought out and lost its investment when Enron went bankrupt in December 2001.

Howard and Krautz both testified, saying the final deal had no buyout guarantee and was legitimate. Unlike their co-defendants, all of whom had left Enron before the company imploded, Howard and Krautz remained on the payroll until March 2003 when they were charged in the broadband case.