Enron prosecutors took a big step forward Thursday by winning indictments against eight more former executives on scores of criminal counts, adding more counts against former Chief Financial Officer Andrew Fastow. One of the eight charged was Fastow’s wife, Lea.
Many observers said the aggressive moves were an attempt to force the defendants to cooperate, but if they don’t, the investigation could slow to a crawl.
“If everybody decided to go to trial the government would spend the next two years in litigation,” said Houston-based criminal defense attorney Kent Schaffer. “They want to use these cases to get up the ladder but they have to get past these cases to move.”
The three indictments unsealed in U.S. Magistrate Marcia Crone’s court more than double the pool of government targets. In the 12 cases the task force had brought previously, only seven ex-Enron executives had been charged or indicted.
The task force had been seeking forfeiture of $30 million in assets from those previously charged. Now it’s after another $36 million, including financial assets, real estate, expensive cars and flashy jewelry.
Andrew Fastow hugged his wife before she surrendered at the Mickey Leland Federal Building and again after she pleaded not guilty to six criminal counts, including tax fraud.
Six of the other defendants turned themselves in at FBI headquarters and were taken in a van to the back of the federal courthouse where they were unloaded and handcuffed. A seventh defendant will surrender later.
They posted bonds ranging from $250,000 to $3 million.
Addressing reporters, prosecutors stressed that the investigation is active and continuing. In fact, while some of the defendants were pleading innocent Thursday afternoon, a prosecutor was taking a witness before the same grand jury that had indicted the eight this week.
“There are many people at Enron and other institutions, including Merrill Lynch, who are responsible for reducing the seventh largest corporation in America to rubble,” said Enron prosecutor Andrew Weissmann. “The Enron task force is continuing to sift diligently through the rubble that is Enron piece by piece, scheme by scheme, and lie by lie.”
The new charges were outlined in three indictments unsealed Thursday:
Andrew Fastow, originally indicted in October 2002 on 78 counts of wire fraud, money laundering and conspiracy, was named in a 109-count superseding indictment, which also charged former corporate treasurer Ben Glisan and former finance executive Dan Boyle. The expanded indictment covers charges of securities fraud, insider trading, falsification of accounting records, tax fraud, and self-dealing in several Enron deals, including one with Merrill Lynch to sell floating power plants in Nigeria.
A 218-count superseding indictment that broadened the charges relating to Enron’s failed Internet division, Enron Broadband Services. Prosecutor John Kroger said that for two years these executives systematically lied to the public about the value and capabilities of the Broadband business, including its deal with Blockbuster Video, and made millions on stock sales.
Two former EBS executives, Kevin Howard and Michael Krautz, were indicted previously. Prosecutors added as defendants former EBS Chairman and co-Chief Executive Officer Kenneth Rice, former president and co-CEO Joseph Hirko, former Chief Operating Officer Kevin Hannon, and former senior vice presidents Scott Yeager and Rex Shelby.
Â· In a separate case, Lea Fastow was charged with conspiracy to commit wire fraud, money laundering conspiracy and filing false tax returns, stemming from her role in a transaction involving a special purpose entity called RADR that involved some California wind farms.
Seven defendants appeared in court Thursday to arrange their bail and plead innocent. Shelby was allowed to surrender later because of a family emergency.
“This may be the biggest shot they’ve taken to date, but 18 months into the investigation it’s not that remarkable,” said Jacob Frenkel, former federal prosecutor and Securities and Exchange Commission lawyer in Washington, D.C. “While the charges have expanded and begin to focus on securities fraud, the government’s desperation to flip Andy Fastow also becomes more and more obvious.”
Prosecutors are clearly exploring every avenue that could lead to former Chairman Ken Lay and former CEO Jeff Skilling. Because of public perception and pressure, they must charge the two or be able to say they had exhausted the possibilities.
Former prosecutors and other legal observers say the best thing that could happen to the Enron task force now is that Andrew Fastow or an indicted Broadband executive becomes a cooperating witness.
The worst that could happen, they say, is that everyone wants to go to trial.
“Charges like this that are very sophisticated, technical and complicated require methodical presentation. Having to prepare these cases, with their thousands of documents will considerably slow the government’s investigation,” said Phil Hilder, a former prosecutor who represents several former Enron executives, including Sherron Watkins, who wrote a now-famous warning memo to Lay.
Though the public may feel that the officers of Enron must be taught a lesson, that won’t necessarily make the prosecution a cakewalk. Each of the hundreds of allegations involves complex testimony that could bore and confuse jurors.
And the Broadband cases face a further hurdle. The tech boom of the 1990s was characterized by unrealistic expectations and a surfeit of hype. And the technical issues in the case could end in duelling expert testimony, seldom compelling for jurors.
Several attorneys representing the defendants blasted the indictments.
“Prosecuting this guy is like prosecuting a piano player in whorehouse,” Bill Rosch said in front of the FBI building after his client, Dan Boyle, surrendered.