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Enron Mastermind Is Guilty

Former CFO Fastow, who took $45 million, agrees to help U.S. in conspiracy case

Jan 15, 2004 | Washington Post

The mastermind behind secretive partnerships that led to the collapse of Enron Corp. pleaded guilty Wednesday to two conspiracy charges and agreed to help investigators learn what the company's top executives knew about its crumbling finances.

Andrew Fastow, 42, is the highest-ranking Enron executive to admit wrongdoing and cooperate with prosecutors, who continue to investigate widespread earnings manipulation at the Houston energy company. In a courtroom packed with relatives and former Enron employees, the former chief financial officer admitted to working with unidentified coconspirators to cook Enron's books and to keeping more than $45 million for himself.

Under the terms of the settlement, he will serve 10 years in prison and three years on probation. Legal experts said the 10-year term was unusually stiff for a white-collar criminal who agreed to help prosecutors. At a Washington news conference, Deputy Attorney General Jim Comey called the sentence "unheard of."

Fastow will remain free on $5 million bond while he assists prosecutors. He and his wife, Lea Fastow, who pleaded guilty to a tax charge Wednesday, will be sentenced later this year. The couple, their family foundation and relatives agreed to forfeit $29 million, including property in Galveston, Texas, and Vermont, and cash in brokerage accounts, to resolve Justice Department and Securities and Exchange Commission charges.

Investigators said the Fastow deal was the biggest break yet in their two-year-old probe. Leslie Caldwell, head of the Justice Department's Enron Task Force, said in Houston that for the first time, prosecutors "have a seat on the 50th floor of Enron. Whatever Andrew Fastow knows about what happened at Enron the task force will now know as well."

The primary focus of investigators remains what former chief executive Jeffrey Skilling and former chairman Kenneth Lay knew about Enron's troubles at the same time they made optimistic public statements about the company's financial health and were selling Enron stock. Neither has been charged with wrongdoing.

Bruce Hiler, a lawyer for Skilling, and Mike Ramsey, an attorney for Lay, said that if Fastow tells the truth, their clients will be exonerated.

Skilling denied knowledge of many of Enron's financial practices in 2002 appearances before Congress, and sources briefed on the case said investigators might compare his testimony with information Fastow can offer about Skilling's involvement in decision-making.

"What you can read into this plea is a belief on the part of the government that Andrew Fastow will shed light into the darkest corners of the Enron scandal and hand up to them at least Jeff Skilling and possibly Ken Lay," said Robert Mintz, a former prosecutor who has been following the case. "The chief financial officer is generally the most critical player in a financial scandal. He is essentially in the catbird seat and should know where the bodies are buried."

Fastow invented secretive business partnerships and used them to conceal Enron's mounting debt and protect the company's credit rating and to reap tens of millions of dollars for himself and his relatives, according to congressional testimony.

Fastow didn't hide his dealmaking creativity from others at Enron or the rest of the financial world. In 1999, CFO magazine lauded his "unique financing techniques" and quoted Skilling as backing the aggressive strategies, which helped boost Enron's stock price.

When outside auditors finally leaned on Enron to restructure some of the deals to follow accounting rules, the disclosure of the company's rising debt and Fastow's self-dealing in the business partnerships sent the stock into a tailspin, pushing one of the nation's largest energy firms into bankruptcy protection in December 2001 and resulting in the loss of thousands of jobs and billions of dollars for shareholders.

Enron has yet to recover. Its bankruptcy lawyers in New York hope to move forward with a plan this summer to restructure the company that would give investors back about 20 cents on the dollar.

Stockholders also are suing Fastow, Skilling, Lay and other former Enron executives.

Fastow already has given prosecutors evidence against former Enron chief accounting officer Richard Causey, who could surrender to face criminal charges as early as next week, sources said. Fastow's plea agreement, released Wednesday, said he had an unwritten agreement with Causey guaranteeing one of Fastow's partnerships a profit at Enron's expense.

By virtue of his place in Skilling's inner circle and his close dealings with the heads of Enron's operating units, Causey is a central figure in any case that prosecutors would make with the theory that Enron's earnings were manipulated for years.

Causey's attorney, Reid Weingarten, said his client followed the law and accounting rules.

Regulators continue to investigate other Enron executives, particularly those involved in a 1999 deal to sell energy-generating barges to Merrill Lynch & Co. to help Enron meet earnings targets.

Sources said Fastow also may provide information about allegedly improper dealings he had with Wall Street bankers and others in the investment business.

Fastow already has paid taxes on some of his gains, and much of the money he collected from Enron has since been used to pay his lawyers, sources said. His public admission of guilt can be used by plaintiff lawyers in shareholder lawsuits to wrest more money from the couple in the coming years, experts said.

The Fastows' plea agree-ments were supposed to be filed in court last week, but were held up when U.S. District Judge David Hittner indicated that he might give Lea Fastow a stiffer sentence than the five months in prison that prosecutors agreed to recommend.

On Wednesday, under virtually the same conditions, Hittner accepted her guilty plea to one count of filing a false tax return for failing to report $141,000 in income from one of her husband's off-the-books partnerships. Lea Fastow's max-imum sentence would 16 months, but she's likely to serve much of that time in home detention, lawyers involved in the case said.

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