A "Lose-Lose" in the Enron Case

The collapsed plea deal with Lea Fastow does nothing to help either the government's prosecutors or the defendant herself

In a major blow to the government and to former Enron executive Lea Fastow, a federal judge on Apr. 7 rejected a plea agreement between prosecutors and defense attorneys that would have put the Houston mother of two in prison for five months. The wife of former Enron Chief Financial Officer Andrew Fastow now appears headed to trial in June -- a risky proceeding for her that could result in even more jail time. It's a venue that even prosecutors wanted to avoid.

The U.S. Attorneys Office had argued vehemently on behalf of the plea deal before the judge. The goverment lawyers fear a trial will drain time and resources from their cases against former Enron CEO Jeffrey Skilling and other key executives. Fastow's subsequent withdrawal of her guilty plea after U.S. District Judge David Hittner made his decision "is a lose-lose situation for both her and the government," says Philip Hilder, a former federal prosecutor who's now representing several people involved in the Enron case.

A former assistant treasurer at Enron who left the company in 1997, Lea Fastow was instrumental in a major victory for the government's Enron task force: A January plea agreement by her husband Andrew, who used off-balance-sheet partnerships at the company to manipulate its finances while enriching himself. He pleaded guilty to charges of conspiring to commit wire and securities fraud and will serve 10 years in prison after helping the government in its other Enron prosecutions. Assistant Attorney General Christopher A. Wray says Andrew Fastow's plea agreement is unaffected by the judge's decision in Lea's case.


  In an effort to convince Judge Hittner to accept the deal -- which also would have included five months of home confinement for Lea -- her lawyers on Apr. 6 filed an unusual sentencing memorandum. In it, they noted that Lea was recently accepted to the University of Texas School of Nursing in Houston. They also included photos of her with her two young sons and explained that neither Lea's nor Andy's parents are able to care for the children because of health problems.

"The people who know Lea Weingarten Fastow best have uniformly described her as devoted to family, thoughtful, kind, unselfish, and since a small child, she has demonstrated an unusual empathy for others," says the memo.

Even prosecutors agreed that Lea Fastow had no part in Enron's stunning collapse in late 2001 and that the 10-month sentence would have been within the range set forth by federal sentencing guidelines. She pleaded guilty to filing a false tax report involving kickbacks that the family received from Fastow's off-the-books deals. The government had dropped charges of money laundering and conspiracy to commit wire fraud, but Fastow could now be tried on those counts, too.


  Some believe that the stakes are too high at trial for Fastow and that her lawyers and the prosecutors will still find a way out of this mess. "She's not going to trial. They'll work something out," says a stunned John J. Fahy, a former federal prosecutor. "It makes no sense that the judge is being this tough on this woman."

Hittner had made it clear earlier in the plea negotiations that he wants to retain control of what her final sentence would be. The probation department's pre-sentencing report to the judge suggested a 10 to 16 month sentence but also left room for something longer.

At a press conference on Apr. 7, when Lea Fastow lawyer Mike DeGeurin was asked what the judge was trying to prove, he said, "that you can't bind Judge Hittner to a sentence." DeGeurin added that he doesn't know how the rejection of Lea's deal will affect Andy Fastow's cooperation with the government.


  Another of Lea Fastow's lawyers, Andrew L. Jefferson Jr. of Houston, says Hittner indicated that he was prepared to sentence Lea to somewhere within the 10 to 16 months recommended in the pre-sentencing report. Would Lea accept an eventual deal that would allow the judge to impose a longer term? "Anything's possible," says Jefferson. He says it's not clear yet what charges the government would try her on if she does go to trial, and "there's still a chance she can be acquitted."

If Lea does go to trial and loses, she could face a maximum of 37 years in jail and a $1.75 million fine. "It will be a very high-risk poker game for her," says Hilder. For the moment, a summer trial looms.

By Wendy Zellner in Dallas, with Lorraine Woellert in Washington

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