Former Enron Corp. executives, along with their friends and relatives, stole at least $35 million through partnerships that defrauded investors, the government charged Wednesday.
Prosecutors also detailed the existence of a shadowy 1997 partnership tied to California windmill farms–an enterprise that they say was the model for what became known as “Friends-of-Enron” deals inside the Houston energy-trading giant.
Those deals, channeled through secretive partnerships, are widely credited for unraveling Enron, a now-bankrupt company that once was the nation’s seventh-largest publicly traded corporation.
The new allegations are contained in a 17-page criminal complaint against Michael J. Kopper, a former Enron financial executive. Kopper pleaded guilty Wednesday in U.S. District Court in Houston to charges of conspiring to commit wire fraud and launder money.
More significantly, however, the Justice Department made clear that its next target is Kopper’s old boss–Andrew S. Fastow, Enron’s former chief financial officer.
Kopper agreed in his plea deal to tell the government everything he knows in exchange for a reduced prison sentence, said Michael Chertoff, chief of the Justice Department’s criminal division. Without a deal, Kopper could serve up to 10 years behind bars.
In announcing the charges against Kopper, Deputy Atty. Gen. Larry Thompson said Fastow also was part of the conspiracy to defraud investors, which began with the 1997 windmill partnership and stretched through July 2001.
In separate forfeiture allegations, the government said it would seize more than $11 million from Fastow-controlled accounts because the money is the proceeds of criminal activity. Using civil forfeiture laws, prosecutors also said they would seek to grab Fastow’s multimillion-dollar mansion still under construction in Houston.
For the first time, prosecutors also detailed what they alleged were a series of secret kickbacks that went to Fastow, his wife, children, friends and a “purported charitable foundation” that Fastow controlled. Also benefiting, the government said, was a friend of Fastow’s wife, Kopper’s domestic partner, and other Enron executives and their relatives.
Kopper will hand over $12 million–his share of the $35 million illegally generated through the three partnerships, Thompson said. The money will go to investors crushed by Enron’s collapse. But it represents only a small fraction of investment losses.
Fastow has not been charged with criminal wrongdoing, nor have any of five others whom prosecutors said received some of the $35 million. But federal officials said they are aggressively pushing the criminal investigation forward.
“Vital’ first step, SEC says
“This case is but a first step, albeit a vital one, in our effort to hold responsible, and to bring to justice, those who participated in this massive betrayal of the investing public’s trust,” said Steve Cutler, chief of enforcement for the Securities and Exchange Commission.
“We anticipate that there will be other cases, and that the information Mr. Kopper will provide will be of great assistance.”
Although the government is clearly pursuing Fastow, the SEC and Justice Department documents filed Wednesday make no mention of Ken Lay, Enron’s former chairman, or Jeffrey Skilling, the former chief executive officer.
But a source familiar with the SEC’s investigation said investigators are still looking at Lay’s and Skilling’s roles in the company’s collapse. Both men have denied that they knew about or approved Enron’s deceptive accounting. A spokesman for Fastow and his family declined to comment.
Legal observers said the prosecution of Kopper, and the case building against Fastow and others, in some ways resembles a narcotics prosecution.
“Originally this [money-laundering] law was used to pursue individuals who took drug money and deposited in bank accounts, or used the proceeds of drug sales to buy houses and cars,” said Thomas Ajamie, a lawyer who specializes in securities law. “Now, the government is using it for business crimes.”
More Top Picks Brother Hc1850
Texas law superseded
Ajamie said the prohibition against money laundering allows the government to seize assets of people not charged with crimes, as is the case with Fastow and Kopper’s other associates. The federal law supersedes a Texas law that prevents homes in that state from being lost to creditors in civil suits.
“If the money is gained from any ill-gotten means, that money is tainted, and the government can pursue it,” Ajamie said.
For months, class-action lawyers and congressional investigators have alleged that Fastow and Enron used a series of secret partnerships to make the company look more profitable than it really was. Last October, when Enron came clean about the partnerships, it was forced to reduce the value of shareholders’ ownership in the company by $1.2 billion. The spiral into bankruptcy quickly followed.
But the first such partnership cited by prosecutors, known as “RADR,” created a dodge of a different sort, according to the charges.
According to prosecutors, RADR partly owned power-producing California windmill farms. State and federal laws gave windmill farms economic incentives and regulatory freedom for creating clean energy, as long as they weren’t owned by public utilities.
In May 1997, Enron, which owned an electric utility in Oregon, set up RADR so it would appear to be an independent operation that could benefit from the laws. But Enron never relinquished control, prosecutors say.
Fastow and Kopper then “contacted several of their personal friends” to invest, according to the charges.
Fastow allegedly lent Kopper money, which he then lent to the circle of friends and relatives who made up the partnership’s investors. Between August 1997 and July 2000, Enron paid the group $4.5 million, and refunded the money that Fastow had fronted.
Two other partnerships cited by prosecutors as part of the fraud scheme were called Chewco and Southampton. Fastow made Kopper Chewco’s general partner when it became clear that Enron would have to publicly disclose Fastow’s involvement.
– – –
Government goes after assets
The government Wednesday sought to seize more than $20 million in bank accounts and assets it says came from illegal deals organized by former Enron executives Michael Kopper and Andrew Fastow. As part of a plea deal, Kopper agreed to hand over $12 million in illegal profits.
%%
BANK ACCOUNTS TARGETED
ACCOUNT HOLDER AMOUNT
Andrew and Lea Fastow $9.1 million
Capital Growth Holding $6.4 million
Fastow Family Foundation (charity) $4.6 million
Kristina Mordaunt (ex-Enron lawyer) $1.7 million
Ben Glisan Jr. (Enron treasurer) $916,137
Peter Fastow (Fastow’s son) $500,000
Kathy Lynn (an Enron vice president) $218,326
Capital GP Holding $130,000
Anne Yeager (Enron employee) $45,000
PROPERTY TARGETED
OWNER ITEM
Andrew and Lea Fastow $1.3 million Houston home
Kristina Mordaunt, Robert V. Ulsh Jr. $321,600 Houston home
Robert V. Ulsh Jr. 2000 Lexus RX-300 SUV
More Top Picks Best Spice Grinders
Sources: Justice Department, AP
baiduhai
%%