Only days after quitting as Enron’s assistant treasurer in May 1997, Lea Fastow joined her husband, Andrew, and family friends in investing $17 million in Enron-owned windmills in California.
Prosecutors now say the investment was a sham with the money advanced by Enron to protect company tax benefits while enriching the Fastows at shareholder expense.
On Wednesday, the U.S. Attorney’s Office in Houston filed separate indictments against the Fastows, accusing Lea, daughter of a prominent Houston family, and Andrew, Enron’s former chief financial officer, of wire fraud, money laundering and false tax returns related to the windmill investment.
Enron’s tax-advantaged bet on alternative energy in the late 1990s is only a small piece of the Houston energy company’s financial collapse. But the prosecutors’ criminal cases against the Fastows put complicated family finances at the center of yet another big Wall Street investment case.
And it raises the question of whether Lea Fastow is being used as leverage against her husband in the ongoing Enron investigation or if the Fastows played a larger role in Enron’s demise than is previously thought. The indictment alleges the Fastows filed taxable income of $61.1 million from 1997 to 2000 while failing to report an unspecified larger sum from illegal partnership deals with Enron.
Defense attorney William Jefferson, who helped arrange Lea Fastow’s release from custody Thursday after posting $500,000 bond, said, ”Mrs. Fastow has done nothing wrong, and she had nothing to do with the fall of Enron. Mrs. Fastow is being charged in order to put pressure on her husband of 18 years, Andy Fastow. These tactics are unfair and unjust. These charges have no merit.”
But Columbia University law professor Jack Coffee said, ”Once you indict her, you can’t take it back. It’s a hardball tactic.”
It is not unusual for regulators to target family members in tax and securities cases, often as a pressure tactic to force an investigation target to capitulate. A generation ago, junk bond mogul Michael Milken pleaded guilty to securities charges after prosecutors threatened to target his brother, Lowell.
More recently, former ImClone CEO Samuel Waksal pleaded guilty to inside trading charges in October after prosecutors threatened to file securities charges against his daughter Aliza and father, Jack.
Securities regulators also are considering filing inside-trading charges against the husband-wife team of Holly Becker and Michael Zimmerman, accusing them of sharing information while Becker was a Lehman Bros. analyst and Zimmerman, a hedge fund trader.
The Fastow indictments allege the couple worked to disguise Enron’s ownership of the California windmills through a special-purpose entity funded by bogus gifts and loans.
The indictment says the scheme also ensnared the Fastows’ two young children and Lea Fastow’s father, Jack Weingarten, though no other family members were charged.
A Weingarten family friend, David Judson, said, ”My reaction is more in sorrow than anger because they have everything to recommend them as far as charity and public service. And to get mixed up in something like that is just not in keeping with their characters.”