FOR IMMEDIATE RELEASE|
WEDNESDAY, OCTOBER 2, 2002
TDD (202) 514-1888
FORMER ENRON CHIEF FINANCIAL OFFICER ANDREW S. FASTOW CHARGED WITH FRAUD, MONEY LAUNDERING, CONSPIRACY
WASHINGTON, D.C. – Deputy Attorney General Larry Thompson today announced that former Enron Chief Financial Officer Andrew S. Fastow has been charged in a criminal complaint with securities fraud, wire fraud, mail fraud, money laundering and conspiracy in connection with the Enron Corp.'s multibillion-dollar collapse.
According to a criminal complaint unsealed today in U.S. District Court in Houston, Texas, Fastow and others devised a scheme to defraud Enron and its shareholders through transactions with certain "Special Purpose Entities," or SPEs – structures set up to achieve the off-balance-sheet treatment that allowed Enron to make itself appear more attractive to Wall Street investment analysts and credit rating agencies. The complaint alleges that Fastow and others at Enron used SPEs fraudulently to both manipulate Enron's financial results and enrich themselves at Enron's expense. According to the complaint, Enron at least once enlisted a major financial institution to assist in its financial statement manipulation. Fastow's chief Enron lieutenant, former executive Michael J. Kopper, pleaded guilty in August to conspiracy to commit wire fraud and money laundering in connection with these self-dealing transactions, and is cooperating with the government's ongoing Enron investigation.
The government also intends to ask for the freezing of an additional $11 million of Fastow's assets based on the allegations contained in today's complaint. In all, the government has frozen and will seek the forfeiture of a total of $37 million derived from illegal activity at Enron.
"Today's complaint demonstrates the effectiveness of a swift, coordinated law enforcement response to even the most sophisticated financial crimes," said Deputy Attorney General Larry Thompson, the head of President Bush's Corporate Fraud Task Force. "Our strategy is straightforward. We aim to put the bad guys in prison and take away their money."
Fastow surrendered to the FBI on the charges this morning, and is scheduled to appear before a federal magistrate in Houston at 11 a.m. Central Time.
The complaint alleges that starting in at least early 1997, Fastow, Kopper and others devised a scheme to defraud Enron and its shareholders through a series of transactions with certain Enron SPEs. Those transactions included:
LJM: In June 1999, relying on false representations by Fastow and others, Enron's Board of Directors agreed to allow Fastow to create and serve as the managing partner of a new SPE called LJM1, and later in a larger SPE called LJM2. Transactions entered into with LJM allowed Enron to manipulate its balance sheet by, among other things, moving poorly performing assets off balance sheet by selling them to LJM. Far from true sales of assets to a third party, Enron's "sales" to LJM were shams. At times, Enron agreed in advance that it would repurchase the supposedly "sold" asset. Further, as the complaint alleges, Fastow and an Enron executive had a secret agreement that LJM would never lose money in its dealings with Enron. Enron was also able to manufacture needed earnings through sham transactions with LJM when Enron was having trouble otherwise meeting its financial goals. According to the complaint, the LJM transactions allowed Fastow and others to personally earn huge sums of money in the form of management fees and skimmed deal profits.
The complaint alleges several instances in which Fastow engaged in illegal activities through LJM, including: a sham transaction in which LJM "purchased" Enron's interest in a struggling company that was building a power plant in Cuiaba, Brazil; and a transaction in which Enron, through Fastow and others, pressured a leading financial institution to buy a $28 million interest in a project involving electricity-generating power barges off the coast of Nigeria with a guarantee that Enron would repurchase the interest for an agreed-upon price within six months.
SOUTHAMPTON: The complaint alleges that Fastow and others defrauded Enron and National Westminster Bank by secretly investing in an Enron SPE, Southampton, and then siphoning off millions in income that rightfully belonged to others. Kopper has pleaded guilty in connection with this scheme, and three British bankers have been charged with wire fraud in connection with their roles in the scheme.
CHEWCO: According to the complaint, Fastow and others proposed the creation of an SPE known as Chewco to buy the limited partnership interest of the California Public Employees Retirement System in a venture known as the Joint Energy Development Investments, or JEDI. The complaint alleges that Fastow, Kopper and others at Enron arranged to fund Chewco through loans that were guaranteed by Enron. Kopper, who was designated managing partner of Chewco because Fastow could not serve without triggering disclosure on Enron's books, then allegedly paid several hundred thousand dollars in kickbacks to Fastow through transfers to Fastow's wife and other family members.
RADR: The complaint alleges that in May 1997, Kopper and Fastow created two SPEs, known collectively as RADR, to purchase a portion of Enron's interest in certain wind farms in California through supposed independent third-party investors known as "Friends of Enron." The investments were actually funded by Fastow. According to Kopper, when the RADR investments became lucrative, Fastow demanded kickbacks and payments in the forms of annual, $10,000 "gifts" to members of Fastow's family.
The Enron investigation is being led by the Enron Task Force, formed in January 2002 to investigate matters related to the collapse of Enron Corp. The task force consists of a team of federal prosecutors supervised by the Department's Criminal Division and agents from the Federal Bureau of Investigation and the Internal Revenue Service's Criminal Investigations Division.
In addition to the Kopper guilty plea announced in August, the Task Force has brought several criminal charges. On June 15, 2002, a federal jury in Houston convicted accounting firm Arthur Andersen LLP of obstruction of justice for destroying documents to keep them from the SEC, which had begun an investigation of Enron. In addition, former Arthur Andersen auditor David Duncan pleaded guilty to obstruction of justice in connection with his role in the destruction of Enron-related documents. In September 2002, a federal grand jury in Houston returned an indictment charging three former British bankers with wire fraud in a $7.3 million scheme involving Southampton.
The Task Force investigation is active and ongoing.