Why did the DOJ pursue EBS Employees?
The book "Securing the Network: F. Scott Yeager and the Rise of the Commercial Internet" tells the story behind the creation of key concepts behind the media-rich commercial Internet of today.
The Role of the Press
The Houston Chronicle Reporter, and the media in general, repeated the DOJ's false narrative without question and without reporting the defense arguments. Furthermore, the press did ZERO research of the facts. If you are willing to do the most basic research, you will see how the premise of the arguments made in the indictments did not add up. For instance, Hirko, Shelby, and Yeager did not own Enron Stock in April 1999. When the supposed conspiracy started, they had options in a subsidiary of Enron, EBS. The BOS announcement video makes clear that it is an announcement of a new effort with Sun. They never played the Shelby 2 video, and it was the basis of the false premise everything was present tense at the BOS announcement. Rice exposed that lie on the stand, and the media downplayed the significance of this enormous lie. There are many other examples, but the press polluted the jury pool, and the odds were against anyone successfully defending themselves even though innocent.
Look at what Kroger says in his own words. His book details the prosecutors' admitted crimes without hiding their motives for power and self-promotion. The Senate version is shorter and shows where the quotes exist in the book for ease in verifying them.
Kroger searched for a "secret oral side deal" somewhere inside Enron Broadband Services. "When I studied (COO Kevin) Hannon's weekly dashboard business reports, I saw that… in 2000 and 2001, EBS had virtually no paying customers. This was intriguing information, for when I looked at Enron's publicly filed financial statements, I saw that EBS reported at least fifty million dollars in new revenue per quarter. This raised an obvious question. If EBS had no customers, where did all its revenue come from? The answer was fraud." (Kroger's book, p. 403)
There we find the first blatant lie. EBS had customers, of course. Dark fiber sales had been a significant source of revenue all along, and other customers used EBS for streaming. That EBS was selling dark fiber had been released to the public in 98, 99, and at the AC 2000. Nonetheless, this did not stop Kroger from intentionally ignoring that the business plan, the strategic plan, and the public statements unambiguously reflected that early revenues were from the dark fiber. Later revenues were going to grow out of the application services such as Media Cast. He ignored publicly stated information to fit his contrived theory of fraud.
Kroger damns himself repeatedly in writing, with his own words in his book. Consider the following examples:
(Page 384) "Leslie, Sam, Andrew and I were used to trying mob, gang, and narcotics cases, in which the only evidence comes from the mouths of cooperating conspirators, so it felt natural for us to follow that model."
(Page 386) "…the FBI assigned eight experienced agents to the case…"
(Page 401) "Throughout this period the Broadband Investigative Team and I always kept our eyes on our major strategic goal, gathering as much evidence as possible against Ken Rice and Kevin Hannon, so they would flip against Jeff Skilling."
(Page 439) "Convicting Ken Lay and Jeff Skilling was critical...letting Skilling and Lay escape – was just too costly."
(Page 440) "… - the ultimate convictions of Ken Lay and Jeff Skilling – appeared to justify our questionable tactics."
(Page 445) "…the end justified the means."
In short, by his own admission, Kroger was proudly displaying a callous willingness to destroy as many careers, destroy innocent lives, and inflict any damage necessary to the industry to claim a victory for political gain—evidence and facts be damned.
Carol Walcoff, the owner of CountryCool.com, was but one of the seventy-plus witnesses the FBI interviewed. Her company had hired EBS to provide the live Webcast from the Country Music Awards in the fall of 1999. She told the FBI that, after researching the industry, EBS "had shown they could provide reliability that did not exist with other companies… Walcoff viewed Enron's team as very good, as was their linkage movement and tools… Walcoff estimated that Country Cool paid Enron approximately $40,000 per month from October 1999 to June 2000 for streaming video content over the Internet." (p. 1-2, Walcoff-Rdct.pdf)
The agents also interviewed the Chairman, the COO, and the CFO of Digital Entertainment Network, DEN. All three men were very positive in their statements. The CFO said their engineers had tested the network, and the COO said Enron was the bandwidth provider for their video streams. Another major customer was Atom Films, which continues to be one of the major aggregators of online video content, and there were many smaller customers. So there were revenues, though, in the overall scheme of things, these were small deals. However, Skilling had told the analyst in the AC 2000 that the metrics they should use to judge if EBS was making its number were Total Contract Value. TCV was not actual revenue but projected revenue of a contract over the contract term. One million per month for 25 months equals 25 million TCV. Then the next metric was DS3 months, which was a trading way of thinking about selling bandwidth and the number of servers installed. So, that limited revenue in 2000 had nothing to do with the TCV, the DS3 months, or the number of servers. The metrics given to the public made this clear. Yet Kroger ignored this explanatory part of the AC 2000 video and concocted a fictional metric based on actual 2000 revenues for the Media Cast product. He then used this false comparison to claim fraud. EBS also stated that it expected to lose $60 million in 2000, but Enron was a 100 billion revenue company, so $60 million was not even one percent of their total revenues. Therefore, it was inconsequential to Enron. Skilling also said EBS would burn billions just like it had for Enron Energy Services. Skilling had publicly set correct expectations of long-term losses at the AC 2000 — versus the fraudulent logic Kroger admits using to claim falsely that a crime occurred. The apparent fraud related to EBS was on the part of the prosecutor, not EBS.