July 30, 2004
Another Enron guilty plea

Welcome to Club Fed, Ken Rice!

Ken Rice, the former head of Enron’s broadband Internet business, became the 11th person to plead guilty to an Enron-related crime when he admitted to a single count of securities fraud this morning before a federal judge.

A plea agreement with federal prosecutors requires him to cooperate with the government in ongoing investigations and trials and forfeit $13.7 million in cash and property. Rice faces a maximum 10 years in prison and a $1 million fine, as well as three years of supervision.

The plea centered on a Jan. 20, 2000 meeting with analysts where Rice and others at the company touted the current and future abilities of Enron’s broadband network. That same meeting was mentioned in an indictment against former Chief Executive Officer Jeff Skilling.

Rice, 45, faced charges of conspiracy, securities fraud, wire fraud, money laundering and insider trading. He entered his plea before U.S. District Judge Vanessa Gilmore shortly after 11 a.m.

Attorneys close to the case have been expecting Rice to reach a deal with prosecutors for many weeks. As a division head he would have reported directly to Sklling, and would likely have had regular contact with former Chairman Ken Lay as well. Both men had pled not guilty to a variety of charges.

Rice said in court today that during the Jan. 20, 2000 meeting with analysts he made several misstatements and withheld information about the true nature of Enron Broadband Services. In particular, he said he made false statements about the broadband operating system, or "BOS", the software that ran the network.


The Jan. 20, 2000 meeting is widely seen as the catalyst for a huge increase in Enron's stock price in the following year. Enron's stock price climbed 25 percent that day and began its gallop up to a record high of $90.56 that August.

EBS was only able to meet its earning targets in 2000 by selling some of its assets to a partnership controlled by former Chief Financial Officer Andrew Fastow, Rice said. In most cases those sales were fraudulent because the partnership was not really at risk when it bought the assets. The Skilling indictment also mentions the false sales to Fastow’s LJM partnership.

Other possible ties between Rice’s plea and Skilling or Lay may have come through Enron’s budgeting process. Company divisions make projections of their expected operational performance in a given year, projections that Skilling and Lay would likely have reviewed and maybe approved. Rice says in his plea agreement that: "Internal projects indicated that the company stood to take substantial losses in 2001, well beyond publicly announced targets."

What a nice way to end the week.

Posted by Charles Kuffner on July 30, 2004 to Enronarama | TrackBack