Andrew Fastow, the former Enron chief financial officer at the centre of the government’s investigation of the company’s collapse, is expected to be charged for his role in the scandal as early as Wednesday, lawyers involved in the case said.
The charges against Mr Fastow, which are expected to come in a criminal complaint accusing him of multiple counts of fraud, would mark the first move by federal prosecutors against the top tier of executives at the failed energy giant, which includes former chief executives Jeffrey Skilling and Kenneth Lay.
Charges against Mr Fastow have been expected for months, ever since government investigators spelled out his role in a complex scheme to allegedly steal $19m from Enron and its bankers in charges filed against three British bankers three months ago.
But it was not until Mr Fastow’s friend and protÃ©gÃ©, former senior Enron finance official Michael Kopper, pleaded guilty to fraud charges last month that the government’s case gained momentum. Lawyers involved in the case said Mr Kopper has filled in many of the details of Mr Fastow’s involvement since cutting a deal to co-operate with authorities.
The criminal charges, which are likely to lead to an indictment in a matter of weeks unless Mr Fastow decides to cut his own deal with prosecutors, are expected to accuse him of serving as the architect of the off-balance-sheet partnerships that brought the company down.
Those partnerships include Chewco, which was set up by Mr Fastow in 1997 to keep Enron assets off the company’s balance sheet. Because of the way Enron finance officials structured Chewco, the huge debts it subsequently incurred should have been reported by Enron in its SEC filings for four years.
Prosecutors are expected to charge Mr Fastow with accepting kickbacks from Mr Kopper for his role in Chewco. Mr Kopper has admitted to receiving approximately $1.5m in “management fees” for running Chewco, and then sharing the payments with Mr Fastow.
In December 1998, for instance, Mr Fastow forced Enron to pay Mr Kopper a “nuisance fee” as compensation for agreeing to amend Chewco’s partnership agreement, Mr Kopper has told prosecutors.
Mr Kopper then took $67,000 of that money and paid it back to Mr Fastow and members of the Fastow family.
A federal judge in Houston has already agreed to freeze more than $20m Mr Fastow and his wife have in accounts at JP Morgan Chase at the Justice Department’s request, an amount prosecutors are expected to allege came from ill-gotten gains. The judge has also frozen the Fastows’ Houston home.
While the charges against Mr Fastow bring the Justice Department’s Enron taskforce closer to the company’s former chief executives, Mr Lay and Mr Skilling, it remains unclear whether prosecutors have made much progress in their case against the two men thanks to Mr Kopper’s co-operation.
Documents uncovered by government and internal Enron investigators have done little to shed any light on whether Mr Lay or Mr Skilling had any direct involvement in the questionable dealings at the partnerships, and Mr Lay has told investigators he did not know who Mr Kopper was until the company began unravelling.
Indeed, prosecutors have pressed Mr Lay’s lawyers and accountants for information on his stock sales, an indication that they have shifted their investigation from his involvement in the accounting improprieties to insider trading allegations.
Mr Lay’s lawyer has said the stock sales in question were all made to repay loans owed to large banks which had been collateralised with Enron shares, and not made due to inside information.