TOPICS > Economy

Fastows Reach Plea Deal in Enron Case

January 14, 2004 at 12:00 AM EDT

JIM LEHRER: Now, more on today’s big plea bargains in the Enron case. New York Times correspondent Kurt Eichenwald was in the Houston courtroom today. Robert Mintz is a former assistant U.S. attorney who specialized in white-collar crime. He’s now in private practice in New Jersey.

Kurt Eichenwald, first put Andrew Fastow on the kind of executive power chart at Enron.

KURT EICHENWALD: Andy Fastow is about as close as you can get to the top of Enron, without reaching the top. He was chief financial officer, he was a close colleague of the former chief executive, Jeff Skilling, for quite some time. And as the prosecutors were saying today, Andy Fastow now gives them a seat at the table on the 50th floor of the Enron building, that’s where the executive suites were, and now they have a witness who can tell them who knew what when.

JIM LEHRER: Now what did he admit that he did today in court?

KURT EICHENWALD: It’s kind of interesting because after all the sturm and drang of the last couple of years we actually went back to the original allegations that came up in February of 2002. He admitted two elements that have always been the two elements of the case: One that he defrauded investors by using a device to hide Enron’s losses that didn’t meet the accounting rules, and the other that he defrauded Enron itself through a complex series of partnerships that ultimately cheated the company out of millions of dollars.

JIM LEHRER: These are these find of phony subsidiaries that Enron allegedly created, right?

KURT EICHENWALD: Well, the series of off-books partnerships.

JIM LEHRER: Not phony, right, wrong word. Off, you put it right, what did you say off the books?

KURT EICHENWALD: Off-books partnerships. They were devices that under the accounting rules are appropriate, but Enron frequently used them for inappropriate reasons.

JIM LEHRER: All right. Now, he was originally charged with 98 counts, only two counts he pleaded to, he got ten years in prison, right?


JIM LEHRER: He has to pay back the money, right?

KURT EICHENWALD: He hasn’t been sentenced yet. It’s a three-to-ten-year sentence. He has a forfeiture of $23 million, plus an additional $6 million in civil penalties. But the most interesting element of the plea agreement is that the 96 other counts that he has, that he was not pleading guilty to haven’t been dismissed. They are still there and will remain there as charges that can be brought against him up and until the government decides that they are satisfied with his cooperation. That is a really rugged deal. I mean, the government got extremely good terms in this arrangement.

JIM LEHRER: So they’re kind of keeping the guillotine over his neck, in other words?


JIM LEHRER: Now, Mr. Mintz, I’m sorry, Kurt.

KURT EICHENWALD: The way these usually work is that a defendant pleads and cooperates and then the government puts in a motion for what’s called a 5k1 departure for substantial assistance in the investigation. This just inverts it. It says you’re getting ten years no matter what and if you don’t cooperate you’re going to get more. So it’s a very tough deal.

JIM LEHRER: Do you agree, Mr. Mintz, this is a tough deal, a good deal for the government?

ROBERT MINTZ: Well, it’s a good deal for the government because it provides them with something that they’ve been pursuing for two years, and that is someone who can take them inside the Enron boardroom, shine the light into the far reaches of this scandal and bring them, Jeff Skilling and perhaps Ken Lay as well.

JIM LEHRER: Now, is it known that he can actually do that? Or is it just at this point in time hope that he can bring them Skilling and possibly Ken Lay?

ROBERT MINTZ: Well, based upon the record, it’s not clear what information he can give to them. But you have to assume that the government would not have entered into this deal if they had already had some fairly substantive discussions with him and had a real compelling reason to believe that he can bring home charges against those upper echelon corporate defendants in this case. Usually that is what propels the government into striking a deal like this, and here we have to keep in mind that the government has been under enormous pressure virtually unparalleled pressure to bring charges against Skilling and Lay since this scandal burst onto the public scene. So you know that in striking this deal they were looking for that type of assistance from Andy Fastow, and as it turns out, he’s perhaps the only one that can unlock the door that they’ve been trying to open for the past two years.

JIM LEHRER: So it would be a fair reading then, the fact that they have yet to charge Skilling and Lay means that without Fastow it probably wasn’t going to happen, or at least that’s what they believe?

ROBERT MINTZ: I think that that is exactly right. Usually the way these things play out is that a defendant has his strongest hand to play early on in the investigation. If you are going to strike a deal you strike it early. Here as it turned out I think the Fastows’ hands have actually strengthened a bit over time, because although the government tried to go around Andy Fastow to get to the very top of the corporate pyramid, the plea today I think suggests that they were unable to do that — and in fact that all roads to Ken Skilling, I mean to Jeff Skilling and Ken Lay lead through Andy Fastow.

JIM LEHRER: Yes, Kurt?

KURT EICHENWALD: I would be very careful with this, because one of the things, this is not a man who is going to jail for two or three years, this is a ten-year sentence. He is getting the sentence that is maybe slightly less than half of what he would have gotten had he gone to trial and been convicted on 98 counts. They are getting, you know, a huge sum of money, they are able to prosecute him again if they don’t like his cooperation. I mean what we do know so far, and this I put in the paper so I can talk about it is that in his discussions with the government, Fastow has provided information about the former chief accounting officer — a fellow by the name of Rick Causey [ph], who last week had actually been told to surrender himself on Friday, but that has been postponed — and has provided certain information about Jeff Skilling regarding accounting, but it’s not really clear if that information in and of itself is sufficient to merit criminal charges. It doesn’t mean they won’t be brought, but again I think we need to be careful.

We also need to be careful about saying this will go right to Lay. I mean, Ken Lay and Andy Fastow didn’t have the kind of relationship where they were in close contact all the time. So I think the government what you have to look at is the severity of this sentence, or the severity of this deal, it’s a very severe deal, as well as the fact that we mow they’re getting some information from Andy Fastow, and the fact that you really couldn’t have gotten all that much more by going to trial.

JIM LEHRER: I got you. Mr. Mintz, the Justice Department officials spoke today and we had it in the news summary a moment ago, said that this, because Enron collapsed in 2001, we’re sitting here in 2004. Why did it take so long? The Justice Department said you gotta keep in mine these cases are very complicated. Anything you would add to that?

ROBERT MINTZ: That’s exactly right. This is a very complicated fraud, it involves some cutting edge financial transactions, and it also involved the overlay of the advice of outside professionals. That is Arthur Anderson. And the problem for the government —

JIM LEHRER: Which is an accounting firm.

ROBERT MINTZ: Which is the accounting firm. And one compelling defense to all these charges is that all of these deals were blessed by the outside accounting firm. So the government has to sort of wend its way through this minefield and try to put together a clear-cut case of criminality and that will largely involve deals that were not blessed by the outside accounting firm.

JIM LEHRER: So you as a professional understand why it’s taken so long, right, even though the public may not, you do? Is that what you’re saying?

ROBERT MINTZ: The public — that’s right. I don’t think anybody who knows about how these deals are put together can say that the Justice Department is dragging its feet. They were working as diligently as they could to bring this as quickly as they could.


KURT EICHENWALD: I write about fraud for 18 years, you know, Bob Mintz is out there doing it all the time. Those of us who are in this frequently talk about how amazingly fast the government has been in these cases.

JIM LEHRER: Let me ask you quickly before we go, Kurt, what about Lea Fastow, what was that all about, she pleaded to ten months to 18 months, I think for tax fraud, why, what’s going on there?

KURT EICHENWALD: She was a conduit in a deal that her husband put together involving another Enron executive named Michael Copper. And basically she received money or her family received money out of that, the Fastows received money out of that deal. She signed the checks, she signed the income tax statement along with her husband, maintaining that this was not identifying this as income, so it’s a tax fraud.

JIM LEHRER: But it’s not linked to all these other things we’ve been talking about, right, not directly?

KURT EICHENWALD: It’s related merely because the income was coming out of one of these off the books partnerships.

JIM LEHRER: I got you. Gentlemen, thank you both very much.