The Oregonian

Portlander indicted for Enron dealings

05/02/03

JEFF MANNING

The massive Enron criminal investigation has snared another Portlander.

A grand jury issued a 218-count indictment charging Joseph Hirko, former president and chief executive officer of Portland-based Enron Broadband Services, and six other former Enron executives with conspiracy to commit wire and securities fraud.

Hirko, a former Portland General Electric executive who moved to Enron after its 1997 purchase of PGE, turned himself in Thursday at the FBI's office in Houston. Hirko and four fellow defendants were handcuffed and taken in a van to the federal courthouse for initial appearances.

Hirko was freed on $3 million bond.

Also Thursday, a grand jury issued an indictment adding 31 counts to the 78 charges outstanding against Enron's former chief financial officer, Andrew Fastow. It also indicted Fastow's wife, Lea Fastow, and two other former Enron finance executives.

Hirko and his six former co-workers allegedly made repeated false statements about Enron Broadband's financial condition. They also exaggerated Enron Broadband's technical capabilities to deceive investors about the business's value and potential, the indictment claims. They did so, according to the indictment, despite repeated warnings from co-workers that their technology wasn't ready.

Hirko is the second Portlander caught up in the sprawling Enron criminal investigation. Timothy Belden, a former Enron electricity trader, pleaded guilty in October to charges he conspired to manipulate California energy markets during the power crisis of 2000-01.

In addition to Hirko, the grand jury indicted former executives based at Enron's Houston headquarters: Kenneth Rice, who replaced Hirko as Enron Broadband chief executive in June 2000; Kevin Hannon, former chief operating officer; Scott Yeager, former senior vice president of strategic development; Rex Shelby, senior vice president of engineering operations; Kevin Howard, former vice president of finance; and Michael Krautz, senior director of transactional accounting.

Hirko, Rice, Hannon, Yeager and Shelby also were charged with insider trading and money laundering. The men gained about $150 million in stock sale proceeds while allegedly engaged in the Enron Broadband fraud. Hirko alone realized profits of $35 million.

Prosecutors are requesting that the defendants forfeit the gains if they are found guilty.

"Rush to judgment" Hirko's four lawyers said their client did nothing wrong, pointing out that he left the company in July 2000, more than a year before its collapse into bankruptcy.

"Mr. Hirko has been a respected member of the Portland business community for over 20 years," the lawyers said in a written statement. "We believe Mr. Hirko is unfortunately the victim of the rush-to-judgment climate that has characterized the post-Enron collapse period and the assumption by some that, given the magnitude of the collapse, 'there must be a crime here somewhere.' "

Further, the lawyers said, Enron Broadband's claims at the height of the Internet boom must be taken in the context of the time.

"That EBS -- along with many others in the Internet-based industry -- failed to achieve its ultimate goals is not a crime or evidence of a crime," they said in the statement.

Hirko has cooperated with federal investigators, said his lawyers, Norm Sepenuk, Barnes Ellis, Per Ramford and David Angeli, all of Portland. "We look forward to proving his innocence at trial," they said.

Enron Broadband executives hoped to establish the company as a dominant force in the telecommunications industry. Enron inherited the company from PGE when it acquired the utility in 1997.

While under PGE, the company simply hoped to lay networks of fiber-optic cable. Enron, then the seventh-largest corporation in the country, had much bigger plans.

Under Hirko and later Rice, Enron Broadband told the public it was developing nationwide fiber-optic capacity governed by an "intelligent network." Among other things, the company said at the time, the technology would allow Enron to buy and sell Internet capacity in the same way that it traded oil and gas and electricity.

"At various times during 1999 and early 2000, numerous EBS executives and employees told Rice, Hirko, Yeager and Shelby that the Enron network was not intelligent, and Enron's press releases and marketing materials were false and misleading," the indictment states. "Despite these warnings, and other negative information about EBS, Rice, Hirko, Yeager and Shelby failed to correct past false statements and continued to issue new false statements."

The big sell Enron Broadband hoped to make a big splash at Enron's annual analyst conference in January 2000. Early drafts of the PowerPoint presentation "clearly stated that the Broadband Operating System and related network control software was under development and would not be deployed and operational until a future date," the indictment states. As the analyst conference approach, it says, these cautionary statements "were progressively deleted from the PowerPoint presentation."

The Jan. 20 conference was a huge success. Enron made its telecom arm the day's main focus. Within a day, Enron's stock surged from $54 a share to $72, based largely on glowing reports from analysts about Enron Broadband.

But the good times didn't last. Enron Broadband failed to generate significant revenue, and, according to the indictment, management continued to mislead outsiders about its prospects.

It began to lay off employees in spring 2001 and eventually moved the entire company from Portland to Houston.

By summer 2001, Enron had pulled the plug on the company.

Jeff Manning: 503-294-7606 or jmanning@news.oregonian.com