From the Fastows to the Bigger Fish?

Pending plea bargains by Enron's former CFO and his wife could produce insider testimony against Kenneth Lay and Jeffrey Skilling

It looks like the Justice Dept. may be close to landing its first big fish in the Enron case: Andrew Fastow, the energy giant's former chief financial officer. Lawyers for both sides are trying to strike a deal that would require Fastow to plead guilty to at least one charge against him and be sentenced to a prison term of at least 10 years, while allowing wife and alleged co-conspirator Lea Fastow to also plead guilty but spend much less time behind bars, according to federal sources close to the case (see BW Cover Story, 11/24/03, "Heiress In Handcuffs").

Any plea agreement would require the approval of the two Houston federal judges who are supervising the couple's respective cases. One of them, U.S. District Judge David Hittner, nixed a proposed five-month plea bargain for Lea on Jan. 5, according to another knowledgeable source. Attorneys for the Fastows did not return calls for comment, and the Justice Dept. declined to comment.


  Despite the roadblock, however, most legal experts expect defense attorneys for both Fastows to soon strike an agreement with prosecutors that the judges will find acceptable. If that happens, it could be bad news for former Enron Chairman Kenneth L. Lay and ex-CEO Jeffrey K. Skilling -- the men who have become emblematic of a two-year wave of corporate scandal that began with revelations of massive accounting fraud at Enron. Neither Lay nor Skilling have been charged with any wrongdoing, and both maintain they did nothing wrong. But "Fastow would be a deadly witness" for the prosecution, says David Berg, a Houston criminal defense attorney who has followed the Enron drama.

No smoking guns have emerged in the Justice probe to indicate that either Lay or Skilling was directly involved in the disastrous financial maneuvers that bankrupted Enron. "There hasn't been that much of a paper trail in this case," says University of Texas securities law professor Henry T.C. Hu. "Prosecutors will need to rely on oral communications. Fastow could talk about any oral communications he may have had with Skilling and Lay."

Another reason Fastow's cooperation could be key is that corporate criminal liability hinges on intent. Prosecutors have to prove what was in a defendant's head, and that's a tough task. But Fastow, as the former CFO, might be able to provide scene-setting narrative details to convince a jury that Skilling and Lay knew Enron was misleading investors.


  Even if that were to happen, famed Enron whistleblower Sharron S. Watkins still thinks Fastow would make a "problematic witness." Her reasoning: His plea would require him to admit concocting a massive fraud, and his credibility would be open to attack.

Of course, that's a problem in many criminal cases. Yet prosecutors often still manage to get defendants to plead guilty to lesser or limited charges in return for their cooperation in pursuing cases against associates and higher-ups. If they can swing a plea deal, government lawyers will surely be thrilled to be able to call both Lea and Andrew Fastow to the witness stand in any future Enron cases, especially if they involve Skilling and Lay.

By Michael France in New York, with Mike McNamee and Lorraine Woellert in Washington.

Edited by Douglas Harbrecht

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