2 at Enron Accused of Inflating Profit

Federal authorities arrested two Enron Corp. executives on fraud charges Wednesday, accusing them of inflating the company’s earnings by $111 million in 2000 and 2001.

Separately, the Commodity Futures Trading Commission levied charges against Enron and a former employee for allegedly trying to manipulate prices for natural gas, lumber and other agricultural products.

The U.S. Justice Department accused Kevin Howard, the former chief financial officer of Enron Broadband Services Inc., and Michael Krautz, the unit’s former senior director of accounting, of fraudulently recording earnings involving a deal with Blockbuster Inc. to provide video-on-demand.

The two men still work at the company. Howard and Krautz were charged in a Houston court with securities and wire fraud, conspiracy and making false statements to federal authorities.

“We will review the criminal complaint and we will take appropriate action,” said Enron spokeswoman Karen Denne.

Howard and Krautz were released on $500,000 bond each. Neither Krautz nor his lawyer commented on the charges.

“Kevin is innocent of the charges, he is going to fight these with every breath that he has,” said Jim Lavine, Howard’s attorney. “All the work he did at Enron was focused on Enron and had Enron’s best interest at heart.”

Enron and Blockbuster signed a 20-year deal in April 2000 to stream video films to customers’ homes by December of that year.

Howard, Krautz and unidentified others created a joint venture to implement the Blockbuster deal.

They then sold a portion of that venture and its expected revenue stream to an investment structure created and funded by Canadian Imperial Bank of Commerce.

This arrangement allowed Enron to record $53 million in revenue in the fourth quarter of 2000 and $58 million in the first quarter of 2001, the Justice Department said.

However, Enron never received any revenue from the deal and the contract was terminated March 9, 2001, the government said.

Howard and Krautz also face charges they conspired to keep the information from Enron’s auditor at the time, Andersen.

The CFTC, which oversees U.S. futures markets, leveled a series of charges against Enron and Hunter Shively, an Enron desk manager in Houston in 2001, for attempting to manipulate futures markets.

Enron declined to comment on the CFTC charges. “We are continuing to cooperate fully in all investigations,” Denne said.