Former Enron Corp. chief financial officer Andrew Fastow is expected to surrender to federal authorities in Houston in the middle of next week to face fraud charges.
Negotiations continued today to determine when and how Fastow would be charged under a criminal complaint that he participated in several scams that helped cripple Enron and defraud investors.
Enron prosecutors gave Fastow’s attorney a range of days on which he could turn himself in at the federal courthouse, sources close to the case said. The sides tentatively fixed on Wednesday for the arrest and formal charge, though the plan is subject to change.
It is likely Fastow would not be photographed in custody, but allowed to walk on his own and walk out on bond.
Enron Task Force prosecutors have indicated that they do not necessarily want to engage in the spectacle of having a corporate official handcuffed and paraded before the press. This summer the founder of cable television giant Adelphia and former WorldCom executives were led into courts in Manhattan in handcuffs.
“There’s been a fair amount of criticism, even from former prosecutors, about the grandstanding of these arrests of people ready, willing and able to turn themselves in,” said Robert Mintz, a New-Jersey based attorney and former federal prosecutor.
The charges will probably come in the form of a criminal complaint, rather than an indictment by the Houston federal grand jury investigating Enron, said a source.
Mintz said this follows a pattern that the government, including the Enron Task Force, has used in approaching recent corporate cases. “They seem to like to fire an initial volley, signaling how strong their case is prior to indictment,” he said. Mintz said the government must intend to intimidate Fastow into a plea bargain.
David Berg, a prominent Houston lawyer, said he thinks the government may charge Fastow first, before indictment, because it will double the press coverage and thus, the pressure to cooperate.
“To someone who, in his lifetime has been very successful, very accomplished, this will be totally humiliating,” Berg said. “They must believe he can give them someone higher up, and there’s not that much higher to go.”
Legal experts say one of the major pressures on Fastow in any plea bargain will be the fate of his wife, Lea. Prosecutors often use the possibility of criminal charges against a spouse, partner or associate to pressure their real target.
His wife’s name is on some of the frozen bank accounts, which investigators say were repositories of funds obtained through criminal acts. She has also been identified as a participant in some of the questionable partnerships.
Further, she cannot claim a lack of financial savvy, as she is a former Enron assistant treasurer, comes from the prominent Weingarten family and has an MBA from Northwestern University.
Charges against Fastow will at least in part revolve around a series of transactions involving entities with such names as Chewco, Southampton and RADR, in which Fastow and others, including former deputy Michael Kopper, allegedly committed fraud.
Justice Department officials in Washington and Houston declined to comment Thursday on Fastow’s fate.
David Gerger, Fastow’s Houston criminal defense lawyer, refused to comment about his client. Gerger, a respected Houston criminal defense attorney and former federal public defender, is expected to defend Fastow along with prominent California defense lawyer John Keker, known for prosecuting Oliver North in the Iran-Contra scandal.
Fastow has been a target of the federal Enron Task Force since June, when three former British executives of National Westminster Bank were charged in a scheme to defraud their company out of $7.3 million in a complex transaction with an entity called Southampton, which Fastow and Kopper helped establish.
In August, Kopper pleaded guilty to charges of conspiring to commit wire fraud and launder money as part of a plea agreement in which he agreed to help prosecutors.
In the documents charging Kopper, Fastow’s alleged involvement was apparent. And when entering his plea, Kopper testified that he had illegally funneled money to Fastow from the fraudulent partnerships he ran.
Since then, Kopper has provided prosecutors with information that has enhanced the case against Fastow, sources said.
The Enron Task Force has already used the tactic of charging defendants instead of getting a grand jury indictment. The three British ex-bankers were charged in June, but not indicted until this month.
Those charges, however, were filed with a detailed affidavit about the accusations, helping the government get Kopper’s cooperation. A charge against Fastow, if it implicates others, might also bring cooperation from suspects not yet charged.
A defendant’s court appearance, like the one Fastow is expected to make next week, starts a 30-day period in which the government must indict or drop the charges.
Next week, the government is likely to present a federal magistrate with the charges against Fastow, along with an arrest warrant.
Fastow will then likely turn himself in to federal marshals in the Bob Casey Federal Building downtown. After paperwork is filed, Fastow will be taken before a magistrate who will determine whether he is to remain in custody or released on bond.
From the day of his first appearance, the government has 20 days in which it must, if the defendant demands, show the magistrate some of the evidence. The government must show probable cause to believe Fastow committed the offenses.
Mintz expects that if the government cannot negotiate a deal with Fastow, it will eliminate the need for a public airing of its case in a probable cause hearing and go right to the grand jury for an indictment.
A special Houston grand jury has been hearing Enron matters and will likely hear evidence on Fastow. The jury has issued four indictments — one count of obstruction of justice against Enron’s accounting firm, Arthur Andersen, in March, and the three against the British ex-bankers.
Kopper and former Arthur Andersen partner David Duncan waived indictment as part of their cooperation agreements with the government.