TOPICS > Economy

Callled to Account

August 21, 2002 at 12:00 AM EDT


TERENCE SMITH: Nearly nine months after Enron declared bankruptcy, it is the first conviction in the ongoing investigation of the energy giant’s collapse. Today financial executive Michael Kopper pleaded guilty to money laundering and wire fraud.

Deputy Attorney General Larry Thompson who heads the administration’s corporate fraud task force described the case at a Justice Department news conference.

LARRY THOMPSON: The criminal information describes a conspiracy beginning in 1997 and lasting through July, 2001, by Kopper and co-conspirators inside and outside the Enron corporation including Enron’s chief financial officer. The information alleges that the conspirators created an array of companies designed to disguise Enron’s vulnerability to risk, risk and losses and to benefit the conspirators at the expense of Enron shareholders.

The three schemes charged in the information– Radar, Chewco and Southampton– differed in their details but they all had the common purpose to conceal the nature and extent of Enron’s investments by placing them off of its own balance sheet. This made Enron appear more profitable to Wall Street, and in one instance disguised Enron’s regulatory violations.

TERENCE SMITH: For more on today’s conviction we’re joined by Kurt Eichenwald. He is covering the Enron case for The New York Times — and by Robert Mintz, a former assistant U.S. Attorney now in private practice in New Jersey who is following the case closely. Gentlemen, welcome to you both. Kurt Eichenwald, Michael Kopper pled guilty to wire fraud and money laundering. How did those charges emerge and how do they relate to the scheme at Enron?

KURT EICHENWALD: Well, to a large extent, this is simply pasting a criminal charge on to the acts. There were a lot of things that could have been charged. Essentially what the underlying behavior is, is that Mr. Kopper, as well as others at Enron– in this instance, they named the chief financial officer, Andrew Fastow– used the partnership system that had been established at Enron for their own personal benefit.

They washed money through that system back into their own accounts, starting at Enron and ending up with them, effectively using it in certain instances to defraud Enron itself. The wire fraud and the money laundering were the crimes that were committed along the way. So that’s how we ended up with those charges.

TERENCE SMITH: Did Michael Kopper speak in the courtroom?

KURT EICHENWALD: He did speak. In fact that was one of the more interesting moments of the hearing this morning. To a large degree, his statements stripped away whatever pretense was left for the Enron partnership system as being a valid corporate entity or a valid corporate operation. What Mr. Kopper said was that in his job as a manager of one of the off-the-books partnerships known as Chewco, he was secretly paying kickbacks to Mr. Fastow, the chief financial officer of the company, out of the money he was receiving for the partnership job. That sounds very complicated, very eye-glazing. What it basically means is that these two gentlemen, as well as others, used an accounting system within Enron for the purpose of stealing money from the company.

TERENCE SMITH: Kurt, what was his manner in the courtroom? Was it… because this is pretty damning testimony that he’s giving. Was his manner defensive or aggressive or matter of fact?

KURT EICHENWALD: No. He was clearly a man who has spent a lot of time coming to terms with what he’s done. There are a few poignant moments, subtle at times, where he mentioned that he’s been under the care of a psychiatrist for stress-related anxiety. But for the most part he was very matter of fact. There was no hesitancy on his part in naming his friend, Mr. Fastow, as participating in illegal activities.

And after the court hearing was over, his lawyer made a statement– which is fairly common, but I was actually taken by the level of sincerity that certainly seemed to be there– where he apologized to all of the people who were victims of the Enron debacle for the amount that they had suffered as a result of his crimes.

TERENCE SMITH: Robert Mintz, what from your observation, what’s the government strategy here? It would seem that the heat is turning on to Andrew Fastow.

ROBERT MINTZ: That’s exactly right. This approach that the government is taking in the Enron prosecution is the classic prosecutor’s approach to building cases in complex financial frauds. The plea today represents a tremendous breakthrough for the government because it’s really the first crack in an otherwise unified front that Enron executives have been able to maintain for the past seven or eight months.

TERENCE SMITH: Robert Mintz, when the deputy attorney general says that Mr. Kopper is cooperating fully, put that into plain in English for us. What does that mean?

ROBERT MINTZ: Sure. What that means is that in exchange for his guilty plea, he has agreed to provide prosecutors with information, with documents, with really anything they’re looking for that might assist them in this prosecution. And what that means in simple terms is that he will be debriefed. He will be used in a grand jury if necessary and ultimately he will be used as a star witness at trial against Mr. Fastow and possibly others.

TERENCE SMITH: And, Mr. Mintz, he’s I take it in a key position or was in a key position to know a lot of this.

ROBERT MINTZ: That’s right. This witness is really the quintessential cooperating witness from the government standpoint. And there’s no question that Mr. Kopper was the prize that the government was seeking, and they got that this morning. He is critical because he has that perfect balance of being somebody who is not particularly culpable relatively speaking compared to others who have been publicly involved in this scandal but at the same time he’s got a vast array of knowledge being so close to Mr. Fastow and will be able to lead prosecutors by the hand through this complex series of financial transactions.

TERENCE SMITH: Kurt Eichenwald, in addition to pleading guilty, Mr. Kopper is supposed to turn over some $12 million to the government. How did they arrive at that amount of money and where does it go? Who gets it?

KURT EICHENWALD: Well, the actual calculation is something that we’ve been pressing the government on. How did you arrive at $12 million? There certainly seemed to be ways that came up. There are fees that Mr. Kopper received of some $3.8 million, which seems to relate to one payment of $4 million. But ultimately this is one of those situations where money is fungible and where every dollar comes from we’re not yet clear. Where that money is going to be going on the other hand is a little bit more clear.

Some officials from the Securities and Exchange Commission were in Houston today filing their complaint against Mr. Kopper. They stated that the money that he will be surrendering, certainly the $8 million that they will be receiving, will be used for the benefit of the victims of the Enron debacle. Now they didn’t define those people. There were some who thought does that mean the employees? But usually in these instances what that means are the investors, some of whom are employees obviously, but the investors who lost their money holding on to Enron stock as it tanked.

TERENCE SMITH: This money is meant at some point then to get back to those investors or shareholders?

KURT EICHENWALD: It is meant to do that. People though shouldn’t be, you know, going out to dinner on this yet because ultimately when you divide this among the very many victims of the Enron debacle, you’re not talking about a lot of money per person. But I think there’s going to be more in this pot before the day is done.

TERENCE SMITH: Robert Mintz, it’s been nearly nine months since the bankruptcy filing. And certainly people have been asking questions: Where are the charges in the Enron case? Was the government under some pressure, political if not legal, to come up with something here?

ROBERT MINTZ: They certainly were. There’s no question that the government was working assiduously to try to bring this case as quickly as possible. But you have to keep in mind that if WorldCom and Adelphia were basic subtraction and addition, this case is really Ph.D. level calculus. It will be without question one of the most complex and sophisticated financial frauds ever prosecuted by the Department of Justice. And so they are quite correctly taking their time, building their case one step at a time and making certain that when they go to court and when they indict individuals, including the upper-level management of Enron, that they will have no difficulty proving their case in a courtroom.

TERENCE SMITH: But if now Mr. Kopper is cooperating fully, as the phrase goes, and testifying and so forth, would you anticipate that it will move more rapidly now?

ROBERT MINTZ: I think it will. One thing that typically happens when somebody who is in a critical position like Mr. Kopper defects, moves over to the government and agrees to cooperate is that other people who are sitting on the fence waiting to see which way the winds are going to blow suddenly decide that they’d rather stake their claim with the government than line up with the defense and take their chances at trial. So what we’ll probably see are other Enron insiders striking deals with the government. That will build a wave of momentum and carry the government towards an indictment much quicker than it otherwise would have.

TERENCE SMITH: And, finally Kurt Eichenwald, do you expect that as well?

KURT EICHENWALD: Certainly. The one thing I would caution, I mean, the deal with Michael Kopper was not struck yesterday afternoon. The hearing today made that very clear. There were discussions about reports that had been written by pretrial services. There was other information that made it clear that Mr. Kopper has been interviewed by the government a number of times, that they’ve been working on this deal for quite some time.

You’ve got to remember that’s during the very same time that members on Capitol Hill were standing up and saying, "nothing is happening in this case." A lot of what happens in criminal prosecutions is behind closed doors, rightfully so. It takes time. Ultimately the idea is to get the right answer, not just an answer.

TERENCE SMITH: All right. Thank you Kurt Eichenwald and Robert Mintz, thank you both very much.