The guilty plea by former Enron financial executive Michael Kopper on Wednesday marks a significant turn in the investigation of a company that has come to represent everything that corporate America shouldn’t be. This is the company whose bankruptcy – caused by some of the crimes Kopper has said he committed – cost thousands of unsuspecting Enron workers their jobs and their retirement savings and vaporized tens of billions of dollars in stockholder equity. It always strained credulity to believe that laws were not violated. Now, one Enron executive has conceded that they were and agreed to cooperate with prosecutors. If there are no other indictments or guilty pleas or both, watch cows and pigs do a fly-by along the Milwaukee lakefront.
Kopper admitted in federal court in Houston that he had laundered money and engaged in wire fraud as a result of his participation in so-called special purpose entities – the off-the-books partnerships set up at Enron to inflate profits and enrich various executives. He also agreed to surrender $12 million in illegally obtained assets. Today, the Securities and Exchange Commission may enter the fray and file a complaint charging Kopper with civil securities fraud.
The Kopper plea is a victory for the federal government and an early vindication of the strategic choice it made in pressing its Enron investigation. The Justice Department could have started at the top of the company’s food chain, taking aim at former chairman Kenneth Lay and former CEO Jeffrey Skilling. Instead, it focused on the relative puppies in the hope that their prosecution would lead to the big dogs.
That strategy seems to be paying off. Perhaps more important than his own plea, Kopper appeared to finger Andrew Fastow, Enron’s former chief financial officer and the guiding hand behind the partnerships. Kopper’s activities, which included a successful scheme that turned a $125,000 investment into a $12 million profit in three years, were conducted under Fastow’s direction, Kopper said. On at least two transactions, he added, he kicked back money to Fastow.
Fastow and his bosses, Lay and Skilling, have denied any wrongdoing; Lay and Fastow have declined to testify under oath, claiming their 5th Amendment rights against self-incrimination, and Skilling said under oath that he knew nothing of the partnerships.
The chances of testing these assertions of innocence are now much improved. Next, prosecutors must accelerate their activities and unravel exactly what happened at Enron to determine whether other executives belong in the dock. Enron is the exception, not the rule, in American business – or at least that’s the argument, one to which we strongly subscribe. A no-holds-barred investigation is critical to underscoring the point.