The Justice Department’s gangland prosecutors are bringing their street-fighting tactics to the nation’s largest case of corporate crime.
On the same day they announced the first guilty plea from a former Enron insider, prosecutors also sought to seize $32 million in bank accounts of mostly former employees. The accounts allegedly held illegal profits from the partnerships run by the former executive, Michael Kopper, and former Enron chief financial officer Andrew Fastow.
Their aggressive legal steps come as the Bush administration vows to crack down on suspected corporate fraud. After recent arrests of WorldCom and Adelphia Communications executives, the Justice Department’s Enron task force came under pressure to speed its year-long investigation into Enron, the largest case of alleged financial fraud.
The prosecutors showed Wednesday they can play hardball. Seizing the assets of suspects and their families is common in cases involving big drug dealers. Most of the prosecutors on the Enron task force have taken on the Mafia and Asian and Jamaican drug gangs in New York and Boston.
Justice Department prosecutors charged Wednesday that Kopper funneled the profits to Fastow, his wife, Lea, and his son, Peter. An estimated $22 million in the accounts are held by the Fastow family or their foundation, according to a court filing. Prosecutors also hope to seize the Fastows’ $1.3 million home in Houston.
They also are targeting bank accounts and assets of former Enron employees suspected of working closely with Fastow on the partnerships.
Their targets, say court papers, include: former Enron attorney Kristina Mordaunt and her $322,000 Houston home; Mordaunt’s husband, Robert V. Ulsh Jr. and his Lexus sport-utility vehicle; former Enron treasurer Benjamin Glisan Jr.; and former Enron employees Kathy Lynn and Anne Yeager.
The little-known Kopper, who reported to Fastow, was a key player in some of Enron’s financial maneuvers, the government says. Kopper, 37, a native of a middle-class suburb in Woodmere, N.Y., studied economics and finance at Duke University and the London School of Economics. After a stint at Toronto-Dominion Bank in Canada, he joined Enron in 1994.
Court papers filed by the Justice Department and the Securities and Exchange Commission accused Kopper, Fastow and others of secretly devising schemes to ”defraud Enron and its shareholders” and enrich themselves by millions of dollars from 1997 to 2001.
Gordon Andrew, a spokesman for the Fastow family, said that Andrew Fastow ”will respond at the appropriate time and in the appropriate forum.” Outside the Houston courthouse, Kopper’s lawyer, David Howard, told the media that Kopper ”accepted personal responsibility for his role in the Enron tragedy” and ”hopes these actions demonstrate his deep regret.”
Legal experts and politicians hailed the plea agreement as a huge step in the Enron case.
”It’s a brilliant stroke by the government,” says John Fahy, a former prosecutor who is now an accountant at the Reed Smith law firm in Newark, N.J. ”Kopper wasn’t the brains behind all of this, but he was high enough to see a lot of things.”
Ken Johnson, spokesman for the House Energy and Commerce Committee, said, ”We’ve known from the very beginning that Kopper was key. Based on evidence we have in our possession, there were a number of people at Enron who engaged in fraud. This is just the first shoe to drop.”
Kopper asserted his Fifth Amendment right against self-incrimination at an Energy and Commerce Committee hearing earlier this year. People familiar with the discussions say the committee was asked not to interview Kopper because the Justice Department was trying to get his cooperation.
”This has the potential to have big ripples,” says Sen. Ron Wyden, D-Ore., a member of the Senate Commerce Committee, which did its own Enron investigation. ”The question was always going to be: ‘Is anyone going to break?’ ”
Wyden says he believes there is ”very stark, powerful evidence” that fraud was committed by Enron executives.
Wyden, whose constituents include workers at Enron-owned Portland Gas and Electric who were hit hard by the collapse, says he is encouraged that ill-gotten profits will be returned to victims but worries the government’s ability to disgorge these profits is too limited.
Prosecutors have been working overtime in recent weeks to line up more key Enron executives to testify against Fastow, former CEO Jeffrey Skilling and Lay, according to people with knowledge of the situation.
Legal sources say prosecutors have been talking off and on with former Enron attorney Mordaunt, who profited by $1 million in a partnership deal, according to an internal Enron investigation.
Former Enron treasurer Glisan also has tried to broach plea-deal talks with the Justice Department, according to media reports.
Until now, former Enron executives have appeared reluctant to cut plea deals with prosecutors in exchange for testimony. But some former prosecutors say Kopper’s cooperation might be enough to proceed criminally against top Enron management. The government successfully prosecuted its obstruction of justice case against Enron auditor Arthur Andersen earlier this year with only one star witness, Andersen’s former lead Enron partner David Duncan.
”What prosecutors typically try to do is go up the food chain, using one witness as a building block to get more key witnesses to cooperate,” says former Manhattan U.S. attorney Mary Jo White, now a partner at law firm Debevoise & Plimpton.
Lay, the former Enron chairman, had no knowledge of the financial schemes alleged in the Justice Department’s legal filings against Kopper, according to Lay’s Houston attorney Michael Ramsey. Lay never met Kopper, although Kopper might have appeared at an Enron board meeting three years ago with Lay present, Ramsey says.
Legal sources said Lay is cooperating with the Justice Department and the SEC in their investigations.
Pivotal Enron leaders are not the only ones facing the likelihood of criminal and civil proceedings. In June, prosecutors brought criminal charges against three British former employees of National Westminster Bank for dealings involving Enron.
Recently, the spotlight has turned to Wall Street, which made hundreds of millions of dollars in fees on questionable Enron deals. Bankers at Citigroup, J.P. Morgan Chase and Merrill Lynch were grilled by congressional investigators earlier this month for repeated transactions with Enron that might have masked the energy company’s perilous financial state.
As part of the plea deal, Kopper agreed to pay back $12 million in profits that were illegally gained from Enron-related financial deals. Some $8 million will go to the SEC and $4 million to the Justice Department, to be returned to investors and former employees through a court-appointed receiver.
”Ultimately, the objective of both agencies is to get money back to victims,” says Linda Chatman Thomsen, the SEC’s deputy director of enforcement.
Many current and former Enron workers remain angry and frustrated.
”Kopper lied, hurt a lot of people and stole money,” says Karen Padgett, whose husband, Tom, a senior lab analyst at Enron subsidiary EOTT Energy Partners, lost most of his retirement savings. ”I’m glad he pleaded guilty, but he should have done it a long time ago. I just hope he will speak up and expose everybody.”
Sherri Saunders was a senior administrative assistant who worked at Enron for 24 years. She says she lost about $1 million in her 401(k) plan because much of her retirement savings was invested in Enron stock. She’s also glad Kopper pleaded guilty. ”He knows a lot. He was with Fastow all the time. We’re just waiting for the rest to go and get fitted for those orange suits.”
Saunders, 55, has a new job as secretary to the general manager of support services at The Methodist Hospital in Houston. ”I was two years from retirement when I lost my job at Enron. But I try not to dwell on that. I’m moving on.”
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