Federal authorities Wednesday arrested execs of bankrupt Enron Corp. on fraud charges related to a video-on-demand deal with Viacom’s Blockbuster.
The U.S. Justice Department accused Kevin Howard, the former chief financial officer of Enron Broadband Services, and Michael Krautz, the division’s former director of accounting, of fraudulently recording $111 million in revenue.
They were charged in a Houston court with securities and wire fraud, conspiracy and making false statements to federal authorities and released on $500,000 bond.
The Securities and Exchange Commission has filed separate civil charges against the pair.
Enron and Blockbuster signed a 20-year deal in April 2000 to provide streaming video to consumers’ homes by December of that year. The execs and others created a joint venture to implement the Blockbuster pact.
In a convoluted transaction that became Enron’s trademark, the execs sold a piece of the venture to a vehicle created by Canadian Imperial Bank and booked $111 million in revenue over 2000 and 2001, according to the DOJ.
Neither Enron nor Blockbuster received any revenue from the deal, which was terminated in March 2001.
Howard and Krautz also face charges they conspired to keep the information from Enron’s auditor at the time, Arthur Andersen.
If convicted, the two men could face 10 years in jail and a $250,000 fine for each securities fraud violation and five years and a $250,000 fine for each violation of wire fraud, conspiracy and making false statements, the Justice Dept. said.
“Today’s complaint charges these defendants with a significant fraud against Enron’s investors, compounded by lies they told to our investigators,” Deputy Attorney General Larry Thompson, said in a statement.