MARGARET WARNER: Shortly after energy giant Enron collapsed into bankruptcy last winter, federal investigators turned their attention to the company's former chief financial officer, Andrew Fastow. Fastow had been number three at the company, under CEO Jeffrey Skillings, who hired him, and Chairman Kenneth Lay.
SPOKESMAN: I respectfully decline to answer the questions...
MARGARET WARNER: Fastow, who invoked the Fifth Amendment before a House committee in February, had designed a host of off-the-book partnerships that investigators said enabled Enron to hide debt and inflate profits. The partnerships earned Fastow millions of dollars as well. In federal court in Houston today, Fastow was charged with securities and other fraud, money laundering, and conspiracy. The SEC filed a separate civil suit to recover his ill- gotten gains. In Washington, Justice Department and SEC officials announced the charges.
LARRY THOMPSON: Today's complaint and the allied SEC civil action move the government that much closer to securing just punishment and recompense for the truly massive fraud that has been directed against America's investors. And our strategy is really straightforward. We aim to put the bad guys in prison and take away their money.
LINDA THOMSEN, SEC: Our action is a message to all who think they can get away with defrauding investors. No matter who they are or how sophisticated the fraudulent means they employ, we will figure it out, we will pursue them, and we will make them answer for their wrongdoing.
MARGARET WARNER: The charges come six weeks after Michael Kopper, a former Fastow aide, pleaded guilty to conspiracy and agreed to cooperate with prosecutors.
Kurt Eichenwald has been covering the Enron case for the New York Times, and updating us on the story regularly. He joins us again tonight from Houston.
Kurt, welcome back. Lay out for us in layman's terms, if you can, the scheme that was outlined in the criminal complaint today-- the scheme that prosecutors say Fastow perpetrated.
KURT EICHENWALD: Well, it's actually just a complicated shell game. As portrayed by the prosecution, it goes in a few steps. The first is Mr. Fastow, through his coconspirators, set up some partnerships that appeared to be separate from Enron, but in fact were financed by Mr. Fastow. The investors, the outside investors who were required to put up money for it to be treated separately were in fact getting their money indirectly from Mr. Fastow. He in turn was getting the financial benefit of that partnership's performance. That's one area. Another area was Mr. Fastow and others at Enron were getting engaged in finding a particularly good asset that was available that Enron... that was essentially going to be sold. They formed a partnership, they tricked a bank into selling it for less than it was actually worth by working with some of their bankers, and made a very significant profit of many millions of dollars.
The most interesting area, at least as far as I'm concerned, is what are called the L.J.M. Transactions. In those instances, Enron was supposed to be doing business with the Fastow partnership called L.J.M., and selling that entity assets. What was really happening was that Mr. Fastow had an agreement, according to the complaint, with the chief accounting officer of Enron that L.J.M. would never lose money in certain deals with the company. So they weren't real sales. If you have bought something, you are at risk for it. In this instance, he wasn't. Enron bought things back that shouldn't have been bought back. They were selling what the complaint called "Enron's nuclear waste" for marked-up values. Effectively, they were manipulating Enron's income statement, making it look like it was much more profitable than it was, while simultaneously siphoning money off into their own pockets.
MARGARET WARNER: Now, Fastow has been the silent man here. He took the fifth on the Hill; he hasn't given any interviews. We just saw him being led into court in handcuffs. How did he react today in court when the charges were laid out?
KURT EICHENWALD: Well, he certainly wasn't surprised. Mr. Fastow said very, very little in this hearing today-- a lot of "yes, your honors" when asked if he understood the charges and had he read them and things like that. He did... he obviously seemed extremely uncomfortable. Who wouldn't, in this scenario? The whole world had come down to see this moment, this turning point in his life where things are going to get very challenging from here on. I mean, the reality for Andrew Fastow is that going forward, this is an all or nothing. Unless there's a deal cut, if he is convicted, he stands to have a very substantial prison sentence, and potentially be stripped of everything he owns. If he is acquitted, then he will be in the position to move on with his life. But that's pretty much an all- or-nothing proposition.
MARGARET WARNER: And is that by his choice? In other words, were there plea negotiations that failed or has he just... has he not engaged in those with prosecutors?
KURT EICHENWALD: The coin of the realm in any plea negotiation is cooperation. You have to come in and say, "I will do a full proffer. Here is what I know. Here is what I did. I will tell you everything I have done. I will tell you everything everybody else has done." At that point, the government decides whether or not they're going to do a deal with you. Mr. Fastow has not done a proffer. The prosecutor in the case, Mr. Weissman, stood outside of court today and said that Andrew Fastow has refused to cooperate. So ultimately, you haven't gotten past stage one in terms of cutting a deal. Whether that failure to do a proffer is the result of Mr. Fastow being unwilling to do so or the government just saying, "no, thanks; we think you're one the prime bad guys here and we're going to go after you," we don't know yet. But that will certainly come out in the near future.
MARGARET WARNER: Now, one of the charges, of course, is conspiracy, and from the criminal complaint, or from talking to prosecutors, how wide do they think the conspiracy was, and do they believe that it could have been perpetrated without the knowledge of higher- ups of the company?
KURT EICHENWALD: It's a complicated question. I mean, what the complaint lays out is a conspiracy that is much more the kind of corporate conspiracy you see. It's much more of a horizontal conspiracy, as opposed to vertical. Vertical conspiracy is where the top person orders the next, orders the next, or what you see in the mafia. In corporations, people get into conspiracies with their friends and their allies and their colleagues. They don't go to the boss to ask for permission to commit a crime. So what you have here is the chief accounting officer has been implicated in the guarantee against loss, which does create a securities fraud. Whether he did so or not-- again, we haven't heard the evidence. You have Mr. Kopper, another member of the finance department who is clearly part of the conspiracy, who has already pled guilty to those charges. Mr. Kenneth Lay, who is the former chairman and chief executive... his name comes up in the role of having misled the board of directors about the nature of L.J.M. No further information provided about that that we've heard going back to the time of the Powers report, which was put together by the independent committee of Enron's board. And Jeffrey Skillings, who was the Chief Executive Officer and chairman after Kenneth Lay, is not mentioned at all. He just does not appear in the document anywhere.
MARGARET WARNER: And finally, Kurt, as you mentioned, the scheme was pretty much laid out by investigators and investigative reporters and so on. Doesn't it seem like a long time to actually bring these charges?
KURT EICHENWALD: No. Actually I'm fairly impressed how quickly this occurred. The Enron case is an extremely complex case. You're dealing with multibillion-dollar business transactions many, many, many times. You're dealing with hundreds if not thousands of partnerships. You're dealing with many different witnesses in many different locations. The fact that a year ago today Andrew Fastow was the chief financial officer of the company and today he stands charged with one of the most detailed criminal complaints I have read in years... to me, I am astonished at how quickly this happened.
MARGARET WARNER: Kurt Eichenwald, thanks a lot.
KURT EICHENWALD: Thank you.
May 25, 2012
