Hitting a Wall in the Enron Case?
The Justice Dept.'s net is drawing in a growing cast of characters from the Enron collapse. The latest: Lea Fastow, the wife of Andy Fastow, Enron's former chief financial officer. But indictments made public on May 1 only highlight the difficulties of the government's cases and the fact that prosecutors have yet to snag the biggest fish. "Because the Justice Dept. had to reach to its superweapon -- charging the spouse -- that suggests they have made little or no progress whatsoever against charging [former CEOs] Jeff Skilling or Ken Lay," says former federal prosecutor Jacob Frenkel.
An Enron employee from May, 1991, to May, 1997, Lea Fastow was charged separately from her husband with conspiracy to commit wire fraud, money laundering, and filing false income-tax returns as part of schemes allegedly masterminded by her spouse. Legal experts note that it's usually the defense lawyers who want to separate their clients at trial to avoid any "prejudicial spillover." But the government might be afraid that Lea's involvement in the main case would be a "distraction" that could elicit sympathy from the jury, especially since the couple has two young children, says Philip Hilder, a former federal prosecutor.
Andy Fastow, indicted in October, has professed his innocence. Lea, in a statement from her lawyers, did the same. "Mrs. Fastow is being charged in order to put pressure on her husband of 18 years.... These tactics are unfair and unjust," said her lawyers, Nanci Clarence and Andrew Jefferson Jr. Says Hilder: "The government seemingly was trying to leverage Mr. Fastow into accepting a plea with the threat of prosecuting his wife. It appears that Mr. Fastow is going to put the government to their proof and steadfastly is going to fight the charges."
UNTANGLING THE WEB.
With the prospect of his wife going to trial -- and likely on a faster track than he is -- Andy Fastow could yet be pressured to make a deal. But Robert Mintz, a white-collar criminal-defense lawyer at McCarter & English, points out that even if he does plea-bargain, the government will be hard pressed to drop all charges against Lea. Says Mintz: "Once the government has made a decision to bring charges, it's difficult to justify an outright dismissal of a case."
The government also unveiled superseding indictments in cases against Andy Fastow and former Enron broadband managers Kevin Howard and Michael Krautz. The latest grand-jury charges add defendants to those cases: former Treasurer Ben F. Glisan Jr., Global Finance Vice-President Dan Boyle, former broadband CEOs Kenneth Rice and Joseph Hirko, former broadband COO Kevin Hannon, and Scott Yeager and Rex Shelby, former broadband senior vice-presidents.
The government appears to be making progress in untangling Enron's complex web of businesses and the "special-purpose entities" used to bolster the energy company's reported financial results. But the indictments also indicate prosecutors' "inability to strike cooperating deals with any other significant defendants," says Mintz. Such deals were expected to follow the government's breakthrough plea agreement last August with Michael Kopper, a former finance exec and Fastow lieutenant. "It may well come down to the simple proposition that many of these defendants remain convinced that they committed no criminal acts," says Mintz.
Without the help of key executives, the government will certainly have a tougher time explaining these complex transactions to a jury. In the case of Andy Fastow, Glisan, and Doyle, prosecutors charge that they defrauded Enron and its shareholders through a series of deals with off-balance-sheet entities. The 109-count indictment, up from the original 78, alleges that Fastow, Kopper, Glisan, and others secretly enriched themselves at the company's expense. The indictment involving the broadband unit charges that former executives knowingly deceived investors about Enron's technological capabilities and its business performance while profiting from hefty stock sales.
On its face at least, the six-count indictment against Lea Fastow appears much simpler. She's charged with taking kickbacks in her husband's off-balance-sheet maneuvers, sometimes disguised as "gifts" from Kopper. The indictment also alleges that she caused her father to file a false tax return to disguise that the Fastows had tried to use him as an equity investor in one of the special-purpose entities. He allegedly received a breakup fee when Enron's counsel advised that Andy Fastow and his family couldn't participate. But Lea lied to her father's tax accountant about the nature of the fee, according to the indictment.
The Enron saga takes another plot twist. But the question remains: Where is it all going?
By Wendy Zellner in Dallas