Joseph Hirko, the former co-CEO of Enron Broadband Services, was sentenced Monday to 16 months in prison on a wire fraud charge related to false claims made by the failed telecommunications company, the U.S. Department of Justice said.
Enron Broadband Services (EBS) was a division of Houston energy company Enron, which went bankrupt in late 2001.
Judge Vanessa Gilmore of U.S. District Court for the Southern District of Texas also ordered Hirko, 53, of Portland, Oregon, to forfeit about US$7 million in restitution to victims through the U.S. Securities and Exchange Commission's Enron Fair Fund. Hirko pleaded guilty on Oct. 14 to one count of wire fraud, charged in a superseding indictment.
In July 2005, Hirko and four other EBS executives were tried on various charges of conspiracy to commit securities and wire fraud, insider trading and money laundering relating to their employment at Enron. The case resulted in a mistrial, and Hirko was subsequently charged in a superseding indictment with wire fraud, securities fraud and insider trading.
Hirko and the other EBS executives hyped products that didn't exist, the DOJ said. Hirko participated in an Enron analyst conference in Houston at which Enron introduced EBS as one of its "core" units, according to the plea agreement.
Enron also announced the development of a broadband operating system or "BOS," and the product was purported to be an "intelligent" operating system that included a standard protocol for accessing real-time bandwidth.
Enron issued a press release on May 15, 2000, announcing the acquisition of Warpspeed Communications. The Warpspeed release falsely represented the status of the BOS and implied that it was already embedded and functioning as a part of Enron's network, according to the plea agreement.
The Warpspeed release said that the BOS "allows application developers to dynamically provision bandwidth on demand for the end-to-end quality of service necessary to deliver broadband content." Hirko reviewed and approved this language even though the Warpspeed release was inaccurate, the DOJ said.
Hirko acted with "reckless indifference" to the true facts, saying that the BOS was embedded on Enron's network, and that it could dynamically provide bandwidth on demand or provide for the end-to-end quality of service necessary to deliver broadband content, the DOJ said in a press release.
Hirko's approval of the Warpspeed release, as well as other press releases, assisted in maintaining Enron's overall stock price, thereby improperly maintaining the value of Hirko's holdings of Enron stock, the DOJ said.