The federal government is hoping its plea agreement with former Enron executive Michael Kopper will jump-start its sluggish Enron prosecution and help restore confidence in corporate America and the markets.
But the more you know about Kopper, the more outraged you’d be by the deal he copped.
Kopper, 37, is sometimes portrayed as a bit player in the Enron scandal. In reality, he helped design and personally benefited from some of the main partnerships that Enron allegedly used to hide debt and inflate income.
He and his domestic partner — whom Kopper recruited into deals in which Enron needed an “outside” investor — reaped more than $12 million in fees and profit from three partnerships in which they had invested about $150,000, according to court documents.
“Although he’s not a household name to those following the Enron case on TV,
he’s one of the most central characters,” said John Coffee, a law professor at Columbia University. “He was not the office boy.”
Kopper was managing director in Enron’s global finance division under former Chief Financial Officer Andrew Fastow.
Kopper pleaded guilty Tuesday to one count each of conspiracy to commit wire fraud and money laundering — a pittance compared with criminal charges he could have faced.
He also settled a civil securities-fraud charge filed by the Securities and Exchange Commission on Tuesday. Without admitting or denying guilt, Kopper agreed to be barred permanently from acting as an officer or director of a public company.
Kopper agreed to turn over $12 million in ill-gotten gains and cooperate with government prosecutors. The hope is that Kopper will implicate Fastow, who will implicate former Chief Executive Officer Jeff Skilling, who will incriminate former Chairman Ken Lay.
Kopper faces up to 15 years in prison but is not likely to serve much, if any, jail time, depending on his degree of cooperation. He won’t be sentenced until April 2003.
The government is using the same strategy in the Enron case that it uses against organized crime: Let smaller mobsters off the hook if they’ll rat on their bosses.
“It’s the normal parade of falling dominoes, with the smaller ones falling against the larger dominoes . . . until you get to the godfather, who might get 20 years in prison,” said Coffee.
According to Coffee, the strategy makes sense. “In both cases, you’re dealing with complex organizations where people deal only with their immediate circle,” he said. “It’s a game of barter. It can be disturbing and corrupting, but the only way you get cooperation is by giving up something.”
Others say Kopper may be getting off too easy.
“Kopper was up to his eyeballs in all of this,” said Britt Tinglum, an attorney with Keller Rohrback who is suing Enron on behalf of its 401(k) participants. “He wasn’t just a lackey for Andy Fastow. He was clearly a strategizer.”
Tinglum said her initial reaction to Kopper’s guilty plea was a sigh of relief: “At least some fruit is coming to bear from these investigations.”
But then she began wondering, “Has the government given an easy deal to one of the biggest wrongdoers simply because his name is not as well known?
“If you give a totally bad actor a good deal, every other bad actor and big bad actors are going to want a similar deal,” Tinglum said.
Given all the suspected white-collar criminals out there, Tinglum asked, “Is that the kind of example the government wants to set? If they really had the goods on Kopper, wouldn’t the better goal have been to make an example of him?”
Steve Sidener, a San Francisco lawyer who represents investors, says the government is taking the fastest, easiest path.
“There have been a lot of criticisms from Congress as to why the government isn’t doing anything” about Enron, he said. “The elections are coming up. This guy (Kopper) had tremendous exposure (to criminal liability).” Using Kopper to get to Fastow “is probably the shortest distance between two points.”
Government prosecutors like to get plea agreements, “especially when they lack the confidence or expertise to pursue complicated accounting fraud cases, ” Sidener said.
But Enron “is not a difficult case. It’s very simple in terms of what happened. You could put together a magnificent case based on documents and forensic accounting. It has already been done by the press. The media has put together some great stories about how this happened,” Sidener said.
Another gnawing question: What if Kopper turns out to be another David Duncan?
Duncan was the Arthur Andersen partner who led the Enron audit and ordered the mass destruction of documents. The government charged Duncan with a single count of obstruction of justice after he agreed to testify against Andersen, which had already been charged with obstructing justice.
In the courtroom, however, Duncan “proved to be a very equivocal witness. The defense got as much (out of his testimony) as the prosecution,” Coffee said.
Duncan’s testimony did not figure into the jury’s guilty verdict against Andersen.
“Duncan shows that sometimes witnesses who are supposed to be the smoking gun turn out to be fairly limp witnesses who don’t prove much,” Coffee said.
Duncan is still awaiting sentencing.
MORE ANDERSEN NEWS: The California Board of Accountancy has moved to revoke Andersen’s license to do business in the state. The move is based on a section of the Business and Professions Code that lets the state revoke a firm’s license if its license is revoked by another state or governmental jurisdiction.
“The state of Texas last Friday revoked Andersen’s license” based on the firm’s criminal conviction, said Gregory Newington, the board’s chief of enforcement. “We’re basically piggybacking on the state of Texas.”
You might wonder why the board is bothering, considering that Andersen is basically smoke and embers in California.
Andersen sent the board a letter dated Aug. 1 saying it was withdrawing its license in California and ceasing operations here. Newington thought the firm was gone but recently discovered a “skeleton” office in Los Angeles.
“They cannot unilaterally pull their license and be exempt from discipline, ” Newington said. The board has jurisdiction over Andersen’s license until 2009 and wants to make sure no one tries to rekindle the coals.
Meanwhile, Andersen is leaving a trail of disgruntled former clients and employees in its wake.
One is Mike Coke, Chief Financial Officer of AMB Property, a former Andersen client. When AMB’s new auditor tried to get access to Andersen’s work papers from the AMB audit, Andersen charged a $10,000 fee.
Normally when companies change auditors, an old auditor charges nothing or a small fee for access to work papers, he said.
Andersen’s legal counsel in Chicago had no comment before she slammed down the phone.
Avery Cannon, who was a senior auditor in Andersen’s San Francisco office, also got a nasty surprise when she was laid off.
Cannon worked full time during her last two weeks, but because she didn’t have too much work, couldn’t bill all her hours to clients.
In her last paycheck, the 30 to 40 hours that were not billed to clients were taken out of her vacation instead of being paid in cash.
“If I’d known they were going to do that, I would have stayed home and enjoyed my vacation,” she said.