TELECOM Digest OnLine - Sorted: Ex-Enron Internet Chief Describes Losing Power

Ex-Enron Internet Chief Describes Losing Power

Lisa Minter (
Mon, 27 Jun 2005 20:55:57 -0500

By Mark Babineck

The former Oregon-based co-chief executive of Enron Corp.'s broadband
unit watched helplessly as the Houston home office gradually assumed
control and shaped the division, he said on Monday in his fraud and
conspiracy trial.

Joseph Hirko, under questioning by his defense lawyer that began last
week, explained how Enron started taking greater control of Enron
Communications Inc. (ECI) in 1999, first by appointing Enron insider
Kenneth Rice to be his co-CEO.

By the end of 1999, most of ECI's leadership roles had been filled by
people from Houston-based Enron Corp.

"(Rice) brought in new people and new departments as well," Hirko

Hirko, along with former Internet unit executives Rex Shelby, Scott
Yeager, Kevin Howard and Michael Krautz, is on trial for conspiracy
and fraud. Hirko, Shelby and Yeager also are accused of insider
trading and money laundering.

All five men have pleaded innocent.

Rice was a fellow co-defendant until he entered into a plea agreement
and testified against his former co-workers, saying they conspired to
illegally promote the broadband division even though they knew it
could not back up their promises.

On cross-examination Monday afternoon, prosecutor Ben Campbell pressed
Hirko about a scathing January 2000 analysis of the unit's network
security that Rice testified was a sign "the network was in disarray."

Hirko dismissed the appraisal, saying the problems were limited and he
was told at the time they were being addressed.

Campbell later showed jurors several slides Hirko used in 1999
presentations that implied many of ECI's capabilities were
operational. Hirko disputed the characterization, saying his
overlaying oral descriptions of the business were accurate.

Hirko told jurors he felt his power diminishing in 2000 and he
eventually was forced out of the company by Rice and Enron Chief
Operating Officer Jeffrey Skilling, who went on to be corporate CEO
and stands charged in a separate indictment.

Skilling has pleaded innocent and awaits trial next year.

According to Hirko, Skilling said Hirko needed to move from Portland,
Oregon, to Houston to remain atop of the unit, which by mid-2000 was
called Enron Broadband Services (EBS).

Hirko refused, citing a contract clause that called for him to remain
in Portland with his adolescent son.

"(Skilling) said, 'Frankly, I think the reason you didn't want to move
is stupid,"' Hirko said.

Ultimately, Hirko said he agreed to commute to Houston on weekdays,
but it was too late. Skilling appointed Rice to lead EBS in July 2000
and "involuntarily terminated" Hirko.

Hirko quoted Skilling as saying: "I've decided to go with Ken. I'm
more confident he'll build the business I want."

EBS imploded about a year later. Enron Corp. declared bankruptcy in
December 2001.

Nevertheless, Hirko told jurors he always believed in the unit and
even held onto between $8 million and $9 million in Enron stock that
ultimately became worthless.

"I was very proud of what the company and the people accomplished,"
Hirko said. "This was probably the most exciting time of my career."

Lawyers estimated the trial, which began in April and originally was
forecast to be winding down by now, probably would go until mid-July.

Copyright 2005 Reuters Limited.

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