Two former executives of Enron Broadband Services (EBS) were arrested and charged with securities fraud, wire fraud, conspiracy and making false statements regarding a now-defunct venture between Enron and Blockbuster to deliver video on-demand (VOD). Kevin Howard and Michael Krautz are accused of deliberately violating applicable accounting rules to allow Enron to fraudulently record $111 million in earnings in 2000 and 2001. The affidavit also alleges that Howard and Krautz intentionally concealed aspects of the transaction from Arthur Andersen accountants as part of the fraudulent scheme. The transaction at issue was based on a 20-year exclusive contract signed by EBS and Blockbuster in April 2000 to stream video films to customer homes. The plan was to begin testing the VOD service by 15-Dec-2000, but the service was not expected to produce any profits until many years later. The two former executives are charged with creating a fraudulent scheme to allow Enron to immediately recognize anticipated future earnings from the Blockbuster deal.
http://www.usdoj.gov/opa/pr/2003/March/03_crm_153.htm
- At the time of the deal in 2000, Blockbuster said that it would offer a Blockbuster entertainment service, initially featuring movies on-demand. SBC Communications, Verizon, Qwest, Covad Communications, Telus and ReFlex signed on as local distribution providers. In January 2001, Blockbuster and Enron chose Motorola’s Streamaster 5000 set top box with ADSL interfaces for the service.
- In March 2001, Blockbuster terminated its exclusive services agreement with Enron Broadband Services, saying that it would focus on current growth channels in home entertainment. Blockbuster said it had “learned a great deal” from its trials with Enron and it believed video-on demand (VOD) would eventually become a commercial reality. Blockbuster said that its strategy will be to remain technology agnostic and open to all alliances.
- In December 2001, Enron Broadband Services filed for Chapter 11 bankruptcy protection in conjunction with its parent firm, Enron Corp. Enron first proposed its bandwidth commodity market in May 1999 and announced its first bandwidth commodity trade in December 1999.
