Transcript Of News Conference with Deputy Attorney General Larry Thompson
Wednesday, October 2, 2002
MR. THOMPSON: Good morning.
Early this morning in Houston, Texas, FBI special agents arrested former Enron chief financial officer Andrew Fastow on charges of security fraud, money laundering, mail fraud, wire fraud, bank fraud and conspiracy to commit all of these offenses. At the same time, the Department of Justice has sought the freezing and forfeiture from Fastow of an additional $11 million traced to the crimes alleged in today's complaint, with the assistance of the Securities and Exchange Commission and the Internal Revenue Service.
(In progress) -- in their details, but all had the common purpose to conceal the nature and extent of Enron's investments by placing of tens of millions of dollars off debt -- I mean, excuse me, of debt off of its own balance sheet. As alleged, this made Enron falsely appear more profitable to investors and disguised the true ownership of assets from regulators. To accomplish this, Fastow allegedly benefited from the active cooperation of a leading financial institution that allowed Enron to park on its books a money-losing Nigerian power barge.
Even while Fastow was alleged to have persistently deceived Enron's investors, Fastow is also alleged to have stolen millions of dollars from these transactions to benefit himself, his friends, and his co-conspirators. In the South Hampton deal alone, the complaint alleges that Fastow's family foundation pocketed $4.5 million.
Today's charges are yet another successful step in a concerted strategy of Corporate Fraud Task Force members that combines the efforts and expertise of the Criminal and Tax Divisions of the Department of Justice and the Federal Bureau of Investigation with our colleagues from the Securities and Exchange Commission and the Internal Revenue Service. This arrest demonstrates the type of coordinated, cooperative law enforcement effort that the president directed the Corporate Fraud Task Force to marshal in cracking down on corporate fraud. Today's complaint and the allied SEC civil action move the government that much closer to securing just punishment and recompense for the truly massive fraud that has been directed against America's investors.
And our strategy is really straightforward. We aim to put the bad guys in prison and take away their money. This investigation is active and ongoing. In the last four months alone it has already produced a guilty plea of Arthur Andersen partner David Duncan and trial -- and the trial conviction of the Arthur Andersen partnership for obstruction of justice. The grand jury -- a grand jury in Houston, Texas has indicted three of Fastow's co-conspirators. And Mr. Kopper has pleaded guilty and has agreed to cooperate in the investigation.
And we will continue to use all of the legal weapons at our disposal to combat corporate fraud. In addition to seeking the conviction of corporate criminals, we will seek to freeze and forfeit assets, where appropriate, so as to punish the bad actors and secure restitution for defrauded investors.
And I want to commend Assistant Attorney General Michael Chertoff of our Criminal Division; FBI Director Bob Mueller; the -- and the head of Enron -- of the Enron Task Force, Leslie Caldwell; assistant United States attorney Andrew Weissmann; and the entire task force for their work on this matter today. And I also want to thank the SEC and the IRS, also members of the Corporate Fraud Task Force, for their great cooperation and successful efforts in this investigation.
These efforts have been undertaken by many dedicated, professional career people who have clearly answered their country's call to root out corporate fraud, wherever it exists.
Now FBI Director Mueller has a statement, and he will be followed by Linda Thomsen, the deputy director of Enforcement for the SEC. And after their statements we will attempt to answer any questions that you may have.
MR. MUELLER: Thank you. Thank you, Larry, and good morning, everyone.
In the past and -- the FBI has investigated any number of white- collar schemes, schemes similar to what has been alleged in this Enron probe. And in those investigations, as in this, you find ill-gotten gains were made by a few at the expense and the suffering of the many. Those who choose to engage in these criminal acts should be aware that the FBI has dedicated a substantial number of agents and support personnel to address these matters.
Corrupt corporate practices have criminal justice consequences, and our war on (sic) counterterrorism will not in any way impede our ability to dedicate the necessary resources to each of these important investigations. White-collar crime remains a top priority for the FBI, and we will continue to work these cases whenever and -- whenever it is necessary.
MS. THOMSEN: Thank you.
Good morning. Today the Securities and Exchange Commission sued Enron's former chief financial officer, Andrew Fastow, for fraud and other violations of the federal securities laws. The commission is seeking disgorgement of his ill-gotten gains, including his salary, civil penalties, injunctive relief and an order barring him from ever serving as an officer or director of a publicly traded company.
Our complaint alleges that Mr. Fastow bears substantial responsibility for the Enron debacle and for the ensuing damage to investors, employees and retirees. As the complaint alleges, Mr. Fastow intentionally distorted Enron's reported performance and unlawfully enriched himself. He engaged in asset-parking of underperforming assets by entering into sham sales involving secret side deals for the repurchase of those underperforming assets. He back-dated documents to lock in the past market value of an investment after the market value of that investment had dropped. He used nominees and secret payments to hide his interest in and control of entities in order to keep those entities off Enron's balance sheet. He demanded and received kickbacks, including payments to himself, his wife and his children, disguised as yearly non-taxable gifts.
Finally, Mr. Fastow made millions through sales of company stock as he was defrauding investors, employees and retirees. Apparently, Mr. Fastow thought he could get away with it -- maybe because his activities involved extremely complicated financial arrangements, or maybe because he co-opted and colluded with people whose self-interest was to keep quiet.
He did not think the SEC and the Justice Department would figure it out. He was wrong.
Our Enron investigation is not over. Our action today against Mr. Fastow, like the earlier action against Mr. Kopper, represents another step in making those responsible for the Enron fraud pay for their misdeeds. We will continue to work closely with the Enron Task Force to bring to justice other responsible parties, and to get the full story of the Enron collapse to the public.
Mr. Fastow's actions, along with the actions of others at Enron and elsewhere, contributed to the decline in confidence in our markets and our system of financial reporting. Our action is a message to all who think they can get away with defrauding investors -- no matter who they are or how sophisticated the fraudulent means they employ, we will figure it out, we will pursue them, and we will make them answer for their wrongdoing.
We congratulate all the men and women in law enforcement who contributed to this important milestone. They have tremendous talent and have demonstrated their unwavering commitment to serving the public good and seeing that justice is done.
MR. THOMPSON: Thank you, Linda.
Questions? Yes, ma'am?
Q Yes, Mr. Thompson. Has Mr. Fastow at all indicated that he would be willing to cooperate with the investigation and give information about other people at Enron?
MR. THOMPSON: I can't comment on that, Ana.
Q General, the money that Ms. Thomsen is talking about, after you've had your $21 million, what money are you after? How much? Are you going to take every dime that he ever made at Enron? And what about the reference to the charitable -- the family foundation? Does that mean that money that would have gone to charity will now go to you folks?
MR. THOMPSON: Mr. Chertoff, if you would like to address --
MR. CHERTOFF: Sure. I think what we can say at this point is that we have, both today and previously, frozen a total of $37 million -- not all of which was in the hands of Fastow; some of which was in the hands of members of the family. And that ultimately at the close of the case, we seek to forfeit that money, as well as any other money that can be traced to the schemes as we continue to investigate.
Q The SEC is on top of that, or what?
MR. THOMPSON: The SEC and our attorneys will be handling that. The freezing of these assets is a matter of a judicial proceeding. We have sought to freeze the assets as listed in the complaint and that will proceed in accordance with the judicial officer that we will appear before in the Southern District of Texas.
Q Did you raise the possibility of any action against Mr. Fastow's wife? And could that possibly have an impact over what happens next in terms of this --
MR. THOMPSON: I cannot comment on any aspect of our investigation beyond what's in the complaint.
Q Merrill Lynch has said it's been informed by the Justice Department it's not a target of any criminal investigation. Does that remain the case today?
MR. THOMPSON: I cannot comment on any other aspect of the investigation.
Q Can I ask Mr. Chertoff to help me with the math? Because if I remember correctly, during the Kopper complaint it was $23 million listed associated with Mr. Fastow. And now Mr. Thompson says there's another 21. And that gets me to forty-something. You just said 37. I guess I -- I'm trying to figure out where the different funds are coming from.
And also, if I can -- also a separate issue. There is mention in the LJM charge here about other Enron executives coming to an agreement with Mr. Fastow. Does that include Mr. Skilling? Can you comment on that? And are those other executives going to be pursued?
MR. THOMPSON: We cannot comment about any other investigative matter that's listed in the complaint. I will ask Mike to deal with the math question. (Laughter.)
MR. CHERTOFF: I was afraid of that. (Laughter.)
I think that originally we talked about approximately -- I'm rounding -- 15 million that was attributable to Fastow, where people acting at his direction or control, and then 12 million which related to Kopper's, which he agreed is part of his agreement that he would ultimately forfeit. And so now we have an additional 11 million. You have to do the addition.
MR. THOMPSON: Yes. Yes, Stephanie?
Q Do you believe you know the entire story of Enron's collapse? I mean, you say that he bears substantial responsibility. Are there things about the partnerships or transactions that you still don't fully understand, or you can give the whole road map now?
MR. THOMPSON: Stephanie, I think the best way to answer that is to direct you to what I said in my prepared statement; that is, the investigation is ongoing. It's active. I meet periodically with Michael Chertoff and Deputy Assistant Attorney General Alice Fisher and Leslie Caldwell. And they give me details about the status of the investigation. I am personally pleased with how the investigation is proceeding and how it's unfolding. And as I said, we have -- and I'm proud to work with the people at the podium with me, behind me, and the people that they represent, because this investigation involved some complex transactions. And we have a number of dedicated, professional, career law-enforcement and regulatory officials who are working on this.
And I can tell you that we're going to get to the bottom of what happened at Enron, and every single person who has engaged in criminal or any other inappropriate conduct will be brought to justice.
Q You don't identify the financial institution or the other Enron executives. Is it fair to assume that they're targets of the investigation? And could we assume that the other Enron executive is not Michael Cooper (sic)?
MR. THOMPSON: I think you understand I cannot comment about any investigative detail beyond the four corners of the complaint, which is fairly detailed. And I think it would inappropriate for me to go beyond that.
Q What kind of sentence does Mr. Fastow face if -- of all the combined --
MR. THOMPSON: Yeah. This is a complaint. There has not yet been a grand jury indictment. But I'll let Mike Chertoff address that issue.
MR. CHERTOFF: Because it's not an indictment, we don't have a number of different counts. But I can tell you the penalties include 20 years for money laundering. Securities fraud, which is alleged in the complaint, is 10 years. Wire fraud, mail fraud are each five years. Conspiracy is five years. So depending on how many charges the grand jury eventually brings, you have to add those numbers together. It's a lot of time.
MR. THOMPSON: Yes, sir?
Q Why the choice of a criminal complaint over a grand jury indictment?
MR. THOMPSON: Well, as you may know, a criminal complaint is a traditional and appropriate way to proceed in making allegations of criminal conduct. It -- whether or not you go -- you proceed with a criminal complaint or a grand jury indictment depends on the circumstances of a case. And in this particular case, the Enron Task Force thought it more appropriate to proceed by criminal complaint. And I understand the reasons that that method was decided upon, and I agree with it.
Q Can you explain what the reasons were?
MR. THOMPSON: No, I'm not going to explain that.
Q Mr. Fastow is appearing in court today in Houston. Is that right? And are you asking that he remain in custody pending trial? And what are the plans there?
MR. THOMPSON: He is appearing in court, and the proceedings of bond will be made and determined by a judicial officer. It's better --
Q Are you requesting that he be held?
MR. THOMPSON: Mike, do you want to comment, or Leslie, do you want to comment?
MR. CHERTOFF: Yeah, Leslie, why don't you --
MS. CALDWELL: Okay.
MR. CHERTOFF: Give everybody --
MS. CALDWELL: We are not requesting that he be held.
We have an agreement in principle with his attorney that's subject to the court's approval that he could be released on a bond of $5 million, which will be fully secured by four parcels of real estate and $3 million in cash.
Q And none of that is considered ill-gotten gains?
MS. CALDWELL: No, at this point those -- none of the proceeds are traceable to those properties or to that $3 million.
Q Did he surrender, or was he arrested? Was he handcuffed?
MS. CALDWELL: He was permitted to surrender.
Q Can tell us why the difference between him and some of the other recent arrests, where people have been handcuffed?
MS. CALDWELL: Well, as we have said before in some of our press conferences related to these cases, it just really depends on the circumstances of the case, depends upon the interaction of the counsel for the subjects or targets with the prosecutors and agents. It depends on a number of circumstances, and the agents and prosecutors in this case, from a law enforcement standpoint, advised that this was the appropriate way to handle this case.
MR. THOMPSON: Yes, sir.
Q Two questions: Is the company cooperating with the investigation? Is the company a target of the investigation?
MR. THOMPSON: I'm not going to get into who is a subject or a target of the investigation. And I will let Leslie comment on the cooperation of the --
MS. CALDWELL: Sure.
So far, Enron has been fully cooperative in the investigation, have been providing us with documents and witnesses as requested.
MR. THOMPSON: Okay. Thank you.