The guilty plea that handed prosecutors their first conviction in the Enron case also raises questions about what executives hoped to accomplish with the complex partnerships at the center of the scandal.
Many believe executives were trying to make the company look good by hiding debt and boosting its stock price. But former executive Michael Kopper’s plea said that in at least three partnerships he and others tried to skim millions not for the good of the company, but for themselves.
“I could see a lot of that stuff going on, but I never would have guessed in a million years that it was such a house of cards with such greedy, noncaring people,” said Sherri Saunders, 55, who was among thousands laid off when Enron filed for bankruptcy on Dec. 2.
Kopper, the first former Enron executive to plead guilty to crimes related to the company’s failure, admitted to creating partnerships designed to enrich himself, his former boss Andrew Fastow and others at Enron at the expense of the company and its shareholders.
He admitted to money laundering and conspiracy to commit wire fraud in three partnership schemes designed to look like legitimate business deals. He said friends, some Enron workers and members of Fastow’s family stepped up as investors and, using loans from Fastow or Kopper, put up money to make the partnerships appear independent of Enron.
The partnerships then did deals with Enron that generated millions of dollars. Kopper kept some profits and generated massive fees for handling the deals. He also said he funneled money back to Fastow and his family as well as the investors.
“Within the general corporate scamming to keep up the stock price, there were personal games of enrichment going on â€” that’s what his confession essentially amounts to,” said Duane Windsor, a business ethics professor at Rice University in Houston.
Kopper worked for Enron from 1994 to July 2001, when he quit to run one of Fastow’s partnerships. Enron forced Fastow out in October after acknowledging that he received more than $30 million from the partnerships.
Sherron Watkins, the Enron executive who also worked for Fastow in Enron’s finance division, tried to warn former Enron chairman Kenneth Lay about accounting problems. She also asked for and was granted a reassignment to another department, fearful that a vengeful Fastow would try to have her fired.
She warned Lay in a seven-page memo released by Congress in January that centered on entities other than the three partnerships on which prosecutors are focusing.
While Watkins was wary of Fastow, she considered Kopper “extremely bright and smart,” said her lawyer, Philip Hilder.
“Not knowing what he was involved in, she was shocked and disappointed to learn the depth of his involvement regarding kickbacks,” Hilder said.
Kopper, a 37-year-old former banker with degrees from Duke University and the London School of Economics, lived well on the millions he pocketed from those dealings in addition to $3.63 million in salary, bonuses, restricted stock and other payments in the year prior to Enron’s collapse.
The native Long Islander and his domestic partner William Dodson live in a $1.4 million marble and stucco four-bedroom house where an off-duty police officer was stationed Thursday to keep unwanted visitors off the property. Between them, the pair have four BMWs registered in their names.
Kopper’s house is barely a block from the exclusive high-rise where Lay lives on the 33rd floor in a $7.1 million penthouse.
A few blocks away in River Oaks, Houston’s wealthiest neighborhood, workers continued Thursday to finish construction on Fastow’s new five-bedroom stone house worth more than $2 million. Fastow lives in another high-end neighborhood southeast of River Oaks, and recently decided to sell the new home when it is completed rather than move into it, said his spokesman, Gordon Andrew.
Prosecutors are seeking the forfeiture of Fastow’s new house and millions in accounts held in his or his family’s names. Other Enron employees who prosecutors allege were involved in the schemes could also have their bank accounts frozen and assets forfeited if prosecutors convince a judge they were obtained illegally.
Fastow’s spokesman declined comment on prosecutors’ efforts to have the assets taken. Among the other assets held by Fastow and his wife Lea are a 1999 Porsche 911 convertible and a 2000 Mercedes-Benz E320 wagon.
“It was clearly a combination of striving to constantly meet expectations or exceed expectations for Wall Street, but at the same time, there’s certainly an element of personal greed here,” said Robert Mintz, a former federal prosecutor in the Justice Department’s criminal division.
Kopper agreed to surrender $12 million he gained illegally through his accounting machinations as part of his agreement to cooperate with prosecutors.
But 64-year-old Rod Jordan, one of thousands laid off last year, said the surrender was little comfort.
“Some people still had a little bit of hope that maybe they were just skirting the law and weren’t as arrogant and greedy as they really were,” he said. “That hope is gone now.”