Justice Department Charges Former Enron Finance Chief

HOUSTON -- The former chief financial officer of Enron Corp. was charged Wednesday with securities, wire and mail fraud, money laundering and conspiring to inflate Enron's profits and enrich himself at the company's expense.

Andrew Fastow, 40 years old, surrendered Wednesday morning to Federal Bureau of Investigation agents and had a court date later in the day.

The federal criminal complaint charges that Mr. Fastow and others created a scheme to defraud Enron and its shareholders through transactions with off-the-books partnerships that made the company look more profitable than it was.

With the exception of Michael Kopper, a once-trusted Fastow aide who has pleaded guilty to conspiracy charges, the complaint does not identify the others who allegedly participated in the scheme that led to Enron's bankruptcy.

Mr. Fastow arrived at the FBI's headquarters in Houston in anticipation of an initial court appearance on charges related to partnerships blamed for fueling Enron's swift descent last year.

He was accompanied by his attorney, John Keker. After Mr. Fastow turned himself in, Mr. Keker quickly left.

Mr. Fastow spent about 30 minutes inside the FBI office before two agents led him out in handcuffs.

Mr. Fastow is said to have devised the company's complex web of off-the-books partnerships used to hide some $1 billion in debt from shareholders and federal regulators. He is the most prominent company figure targeted so far by the Justice Department.

"Today's complaint demonstrates the effectiveness of a swift, coordinated law-enforcement response to even the most sophisticated financial crimes," Deputy Attorney General Larry Thompson told a Washington news conference. "Our strategy is straight-forward. We aim to put the bad guys in prison and take away their money."

In one instance, prosecutors say that according to Mr. Kopper, Mr. Fastow demanded from a partnership kickbacks of $10,000 a year to members of his family.

"Fastow and his co-conspirators systematically and thoroughly corrupted the business of one of the largest corporations in the world," Mr. Thompson said.

Enron's board of directors approved the partnerships as well as a waiver from conflict-of-interest rules for Mr. Fastow.

Enron filed for bankruptcy late last year, wiping out the retirement savings of employees -- and the investments of pension funds and individuals nationwide. Enron was the first in a series of big corporate scandals that have rattled investors' confidence and the stock market.

Also Wednesday, the Securities and Exchange Commission filed a related civil lawsuit against Mr. Fastow alleging that he defrauded investors and violated securities laws. The SEC is seeking unspecified civil money penalties against Mr. Fastow and repayment of his allegedly ill-gotten gains.

The Justice Department's complaint alleges a conspiracy that began in 1997 when Mr. Fastow designed "clandestine transactions he had rigged up to swindle" investors by placing tens of millions of dollars of Enron debt off the company's balance sheet.

Maximum penalties for the charges against Mr. Fastow include 20 years for money laundering, 10 years for security fraud and five years each on the mail-fraud and conspiracy charges.

Mr. Fastow, who invoked the Fifth Amendment and refused to testify before Congress early this year, reaped an estimated $30 million from the partnerships. He emerged as a central figure in the Enron scandal after the Houston-based company collapsed into bankruptcy last December.

Having brought quick criminal charges against alleged corporate wrongdoers at WorldCom Inc. and Adelphia Communications Inc., the Justice Department had been under enormous pressure to bring criminal cases against executives who ran Enron prior to the energy-trading company's bankruptcy filing. The charges against Mr. Fastow should go a long way toward relieving that pressure.

The Justice Department's Enron Task Force first signaled in June that it had gathered sufficient evidence to bring criminal charges against Mr. Fastow. That month, federal prosecutors filed a criminal wire-fraud complaint against three British former employees of National Westminster Bank PLC for their role one of the Enron partnerships, identifying Mr. Fastow as a central figure in the case. The Justice Department also identified Mr. Fastow as an unindicted co-conspirator in the cooperation agreement it entered in August with Mr. Kopper.

The preference of government officials has been to bring all potential criminal charges against Mr. Fastow in one fell swoop -- rather than charging him with a narrow range of crimes relating to alleged self-dealing, and then broadening the charges later, people close to the investigation say. So while prosecutors easily could have charged Mr. Fastow months ago, the decision was made not to bring any formal actions against him until the government's investigation into his conduct had progressed further.

Once federal prosecutors file a criminal complaint, they generally must secure an indictment within 30 days of the defendant's first court appearance -- or risk having the case dismissed and then being forced to start the process over again.

In his plea with the government, Mr. Kopper admitted to creating partnerships designed to enrich himself, Mr. Fastow and others at Enron at the expense of the company and its shareholders.

Mr. Kopper's admissions focused on three partnership schemes that prosecutors allege Mr. Fastow designed to look like legitimate business deals. Mr. Kopper said friends, selected Enron employees and members of Mr. Fastow's family used loans from Messrs. Fastow or Kopper to invest in the partnerships to make them appear independent of Enron.

Mr. Kopper said that he funneled some money from the partnerships back to Mr. Fastow and his family in addition to paying the investors.

The day after Mr. Kopper entered his plea, a federal judge froze more than $23 million in bank and brokerage accounts held by Mr. Fastow and his wife, Lea, his family foundation, his brother Peter, several former Enron employees and two holding companies. The Justice Department alleged that the accounts contain money from illegal Enron deals largely organized by Messrs. Fastow and Kopper.

The prosecutors also are going after Mr. Fastow's newly built $2.6 million home in Houston's wealthiest neighborhood, River Oaks, where Messrs. Skilling and Lay also live.

The charges against Mr. Fastow raise the question of what he might say about former Enron Chief Executive Jeffrey Skilling and former Chairman Kenneth Lay.

Former Enron insiders say it was Mr. Fastow's aggressive and inventive approach to structuring deals that appealed to Mr. Skilling.

While publicly silent, Mr. Fastow has maintained through his spokesman that he acted with the full knowledge of Enron's top executives, its directors and its longtime auditor, Arthur Andersen LLP. Andersen, once one of the nation's biggest accounting firms, was convicted in June of obstruction of justice for shredding of Enron audit documents.

Updated October 2, 2002 11:27 a.m. EDT