Who Will Fastow Implicate?

Enron's ex-CFO could point the finger at a string of execs, bankers, and lawyers

It's a safe bet that a lot of people in Houston probably had trouble falling asleep last night. Now that former Enron Corp. (ENRNQ ) Chief Financial Officer Andrew S. Fastow has joined forces with the Justice Dept., he could potentially implicate dozens of execs, bankers, and lawyers for contributing to the company's downfall. Unlike WorldCom (WCOEQ ), HealthSouth (HLSH ), Tyco (TYC ), and many other recent corporate scandals, where the circle of accused wrongdoers is small, the Enron case involved "large groups of officers and employees, representing such diverse functions as finance, accounting, tax, and legal," according to a report filed last year by bankruptcy examiner R. Neal Batson.

While most of the attention has focused on Fastow's possible testimony against former Chairman Kenneth L. Lay and ex-CEO Jeffrey K. Skilling, he is a loose cannon who could shoot in several directions. On Jan. 14, Fastow reached a joint plea deal with his wife, Lea, the subject of BusinessWeek's Nov. 24 Cover Story. According to one source close to the investigation, Fastow has delivered a "nice, fat proffer" of testimony. His words could wind up being used in, say, a criminal case filed by Justice, a civil suit brought by the Securities & Exchange Commission, or class-action litigation spearheaded by plaintiffs' attorneys. Here's how his plea agreement with the government could affect key players:

SKILLING. Considering that he was the driving force behind Enron's growth, the micromanaging former CEO did an amazing job of distancing himself from its decline. He stopped selling stock four months before Enron collapsed -- and left the company entirely two months beforehand. He rarely used e-mail. His signature is conspicuously, and uncharacteristically, absent from the approval sheets for some of Fastow's most controversial deals. As a result, there appear to be few, if any, smoking-gun documents that prosecutors could use to show that Skilling directed the financial shenanigans. That's where Fastow could be critical. He could tell jurors about any oral instructions he may have received from the man who was widely seen as his mentor. Skilling has not been charged with any crimes and has denied any wrongdoing.

LAY. One of the biggest remaining mysteries in the Enron fiasco is the extent to which Lay was aware of the games being played by his underlings -- an issue that Fastow will surely discuss with prosecutors. As is the case with Skilling, Lay's fingerprints do not appear to be on any of the company's most dubious deals. Unlike Skilling, the ex-chairman of Enron should have an easier time making a credible case that he was not deeply involved in the day-to-day management of the company. After famed whistle-blower Sherron Watkins wrote a note detailing some of the company's problems, she got a private audience with Lay in August, 2001. Watkins believes he probably knew little about Fastow's doings. "I don't really see Andy giving any damaging testimony against Ken Lay," she says. Lay "wasn't really involved in the details of running the company. If he was involved in anything, it was community giving." Lay's attorney, Mike Ramsey, notes he hasn't been charged with any crimes and says "if Andy tells the truth, there is no danger to Ken."

WALL STREET. Fastow was Enron's main contact with the banking community. In September, the Justice Dept. charged three former Merrill Lynch & Co. executives with fraud for the so-called Nigerian Barge transactions. In December, Dan Gordon, the former head of Merrill's global energy markets group, pleaded guilty to money laundering and wire fraud, and agreed to forfeit $43 million. Now the question is whether the CFO will implicate managers at J.P. Morgan Chase & Co. or Citigroup, the other two banks that did the most business with Enron. All three banks deny wrongdoing. Wall Street bankers "ought to be quite concerned about the information he possesses and presumably will be sharing," says Houston defense attorney Philip Hilder, who represents several ex-Enron employees.

LAWYERS. So far, most of the attention has focused on Vinson & Elkins LLP and Andrews & Kurth LLP, the two law firms that handled many of Enron's Rube Goldberg-like financial transactions. But Fastow could shine new light on the role of Kirkland & Ellis, the firm he hired to represent some of the outside partnerships that allegedly bought assets from Enron at inflated prices. "Kirkland's work was proper," says partner Laurence A. Urgenson. He may not be worried, but plenty of others once tied to the energy giant no doubt are.

By Mike France in New York, with Emily Thornton in New York, Mike McNamee in Washington, and Wendy Zellner in Dallas

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