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. Last Updated: 07/27/2016

Enron Fraud Suspect Implicates Defendants

HOUSTON -- Former Enron Broadband chief executive officer Ken Rice, testifying for the government, implicated four of five defendants on trial for securities fraud at the Enron subsidiary in Houston federal court.

Rice testified that the four men told analysts at a January 2000 conference that Enron Broadband's network software performed better than it did. Rice, who has pleaded guilty to fraud, said they lied in order to prop up Enron's stock price.

"At numerous points in the presentation, myself, Mr. Hirko, Mr. Shelby and Mr. Yeager all stated that we had network control software that could do a number of things it couldn't do," Rice said, adding that they wanted "more credibility" with analysts so as to "get our stock price up."

It is the first time any of the defendants have been directly implicated in the trial, which began this week. Rice implicated defendants Joseph Hirko, a former Enron Broadband chief executive; Scott Yeager, a former senior vice president of business development; and former senior vice president of engineering and operations Rex Shelby.

Rice later implicated a fourth defendant, former vice president of finance Kevin Howard, as well as former Enron chief executive officer Jeffrey Skilling, an unindicted co-conspirator in the case. The fifth defendant is former senior accounting director Michael Krautz.

Rice has pleaded guilty to one count of securities fraud as part of a plea agreement with prosecutors in which he agreed to cooperate with the investigation. He faces as much as 10 years in prison and has forfeited $372,000 in cash and $13.7 million in assets, including a Ferrari and a necklace with 226 sapphires and 16 diamonds that belonged to his wife.

Rice said that he misled analysts again in a 2001 conference because he did not want to concede that he had misrepresented the software's capabilities in 2000. The government claims the five men, who face charges of fraud and conspiracy, misrepresented Enron Broadband Services to analysts and investors as a thriving enterprise worth millions of dollars to the parent company's market value.

For the government, the broadband trial is a prelude to the bigger Enron case coming up next year and gives prosecutors an opportunity to test evidence they plan to use against Skilling, one of 24 unindicted co-conspirators in the broadband case.

n Skilling, charged with securities fraud in the company's collapse, was ordered to leave the Houston courtroom where five ex-Enron Broadband division officials are on trial.

Testimony in the fraud trial was halted Monday until Skilling, who may be called as a witness, could be removed under a rule barring prospective witnesses from hearing other trial testimony. He wanted to hear the testimony of his friend Ken Rice, a former Broadband chief executive, who may testify Monday, lawyer Daniel Petrocelli said.