Enron charged with gas and broadband manipulation

The US Commodity Futures Trading Commission (CFTC) yesterday finally charged bankrupt energy trader Enron and a former company vice-president with manipulating natural gas prices. Also yesterday, federal authorities arrested on fraud charges two Enron officials who had worked in the company's bandwidth trading unit, the US Department of Justice (DOJ) said.

In a complaint filed in a federal district court in Houston, the CFTC alleged Enron and Hunter Shively, a former vice-president, had sought to manipulate commodity prices, including prices for natural gas, lumber and other agricultural products. Shively was the desk manager for Enron’s central desk from May 1999 to December 2001.

The CFTC alleged that on July 19, 2001, Shively, through EnronOnline (EOL), caused Enron to purchase an extraordinarily large amount of Henry Hub (HH) spot market natural gas within a short period of time, causing artificial prices in the HH spot market and affecting the correlated New York Mercantile Exchange natural gas futures price.

The complaint also charges Enron with operating EOL as an illegal futures exchange from September 2001 to December 2001. According to the complaint, in September 2001 Enron modified EOL to effectively allow outside users to post bids and offers. Enron listed at least three swaps on EOL that were commodity futures contracts.

The complaint further alleged that with this modification, Enron was required to register or designate EOL with the CFTC or notify the CFTC that EOL was exempt from registration. Enron failed to do either, meaning that, in effect, EOL became an illegal futures exchange.

Finally, the complaint charged Enron with offering an illegal agricultural futures contract on EOL. According to the complaint, between at least December 2000 and December 2001, Enron offered a US financial lumber swap on EOL. The complaint alleged the EOL lumber swap was an agricultural futures contract that was not traded on a designated exchange or otherwise exempt, and therefore was an illegal agricultural futures contract.

Separately, the DOJ said two Enron executives who were involved in the company's broadband enterprise face charges of securities fraud and wire fraud in connection with Enron's $111 million contract with video retailer Blockbuster.

Kevin Howard and Michael Krautz, who were executives for Enron Broadband Services, were charged with conspiracy and making false statements to US FBI agents, the DOJ said. Howard and Krautz "intentionally violated the accounting requirements" to allow Enron to record $111 million as revenue in 2000 and 2001, said the affidavit released by DOJ.

The Enron Broadband Division signed a 20-year contract with Blockbuster on April 5, 2000, to "stream" movies into its customers' homes. But EBS never generated any significant recurring revenue from its telecommunications business, the affidavit added.