| FOR IMMEDIATE RELEASE
THURSDAY, MAY 1, 2003
TDD (202) 514-1888
JUSTICE DEPARTMENT EXPANDS CHARGES AGAINST FORMER ENRON
CFO ANDREW FASTOW, BROADBAND EXECUTIVES
WASHINGTON, D.C. - The Department of Justice today announced expanded criminal charges have been filed against former Enron Chief Financial Officer Andrew Fastow, his wife and seven other Enron officials in connection with an ongoing criminal investigation into the company’s multibillion-dollar collapse.
Fastow, who was originally indicted by a federal grand jury in October 2002 on 78 counts of wire fraud, money laundering and conspiracy, was named in a 109-count superseding indictment returned by a federal grand jury in Houston, Texas. The new indictment, which also charges former Enron corporate Treasurer Ben Glisan and former finance executive Dan Boyle, includes charges of securities fraud, insider trading, falsification of Enron’s accounting records, tax fraud, and self-dealing. The indictment also seeks forfeiture of self-dealing profits from Fastow and Glisan.
The grand jury also returned a 218-count superseding indictment expanding charges relating to Enron’s failed Internet division, Enron Broadband Services (“EBS”). Previously, the grand jury indicted two EBS executives, Kevin Howard and Michael Krautz, for their roles in a transaction that allegedly enabled Enron to book more than $100 million in fraudulent revenues. The new indictment, which includes securities fraud, wire fraud and money laundering charges, alleges that former EBS Chairman and co-Chief Executive Officer Kenneth Rice, former President and co-CEO Joseph Hirko, former Chief Operating Officer Kevin Hannon, and former Senior Vice Presidents Scott Yeager and Rex Shelby, together with Howard and Krautz and others, orchestrated a long-running scheme to defraud the investing public and others through a series of false statements and press releases that portrayed EBS as a resoundingly successful business. In fact, according to the indictment, EBS’s business never got beyond the development stage, never generated any significant recurring revenue, and was abandoned by Enron in mid-2001, before Enron itself filed for bankruptcy on Dec. 2, 2001.
According to the indictment, at a time when they knew that EBS was misleading the investing public, Rice, Hirko, Hannon, Yeager and Shelby sold large quantities of Enron stock, generating nearly $186 million in proceeds for themselves. The government is seeking forfeiture of more than $100 million of the defendants’ illegal profits.
In addition, the grand jury returned a six-count indictment charging Fastow’s wife, former Enron Assistant Treasurer Lea Fastow, with conspiracy to commit wire fraud, money laundering conspiracy and filing false tax returns, stemming from her role in a transaction involving a special purpose entity (“SPE”) known as RADR.
“Today’s indictments are a significant milestone in our unabated efforts to expose and punish the vast array of criminal conduct related to the collapse of Enron Corporation,” said Deputy Attorney General Larry Thompson, the head of President Bush’s Corporate Fraud Task Force. “They are significant because they encompass a broad range of charged crimes in the Broadband area and with special purpose entity manipulation. Taken together, they bring us closer to a full accounting for the wide range of Enron-related crimes that we are investigating.”
“As the indictments show, this is not a simple case of fraud. Eleven individuals in positions of trust and responsibility made millions as investors lost billions,” said FBI Director Robert Mueller. “As the indictments allege, they engaged in deliberate fraud to conceal the company’s poor performance, and to enhance their personal prestige and wealth. They improperly took advantage of benefits designed to encourage the use of renewable energy. They issued false press releases and back-dated documents. In effect, they built a company of smoke and mirrors.”
Andrew Fastow, Ben Glisan, Dan Boyle
The Fastow superseding indictment includes new charges of insider trading, securities fraud and tax fraud, in addition to naming Glisan and Boyle as co-defendants. According to the indictment, Fastow, Glisan, Boyle and others devised schemes to: fraudulently manipulate Enron’s reported financial results so that the company would appear more successful than it was; artificially manipulate the share price of Enron’s stock; circumvent federal regulations so that Enron could obtain benefits to which it was not entitled; and enrich themselves at the expense of Enron and its shareholders.
The indictment further alleges that the conspiracy involved, among other things, fraudulent transactions with third parties, including Merrill Lynch & Co., Inc., fraudulent transactions with special purpose entities (SPEs), transactions with SPEs and others that were designed to hide the company’s actual business performance, and the filing of false and misleading statements with the Securities and Exchange Commission.
The new indictment alleges that:
In 1997, Fastow conspired with others, including his wife, to create an SPE known as RADR in order to reap for themselves the profits generated by certain Enron wind farms, while simultaneously enabling Enron to fraudulently receive government financial benefits to which it was not entitled;
Between 1997 and 1998, Fastow and his wife received illegal kickbacks from payments made by Enron to an SPE known as Chewco, and failed to report these kickbacks as income on their federal income tax returns;
Between 1999 and 2001, Fastow and others conspired to fraudulently improve Enron’s balance sheet by appearing to divest a poorly performing asset, namely, a power project in Brazil known as Cuiaba; in fact, the asset was “sold” temporarily to an SPE known as LJM, which Fastow controlled, with a secret agreement that Enron would arrange a future buyout of LJM; the indictment also alleges that Fastow personally benefitted from Enron’s buyback of Cuiaba;
Between 1999 and 2000, Fastow, Glisan and Boyle conspired with others, including Merrill Lynch & Co., to fraudulently improve Enron’s balance sheet by illegally “parking” poorly performing Enron assets, namely power barges moored off the coast of Nigeria, first with Merrill Lynch and then with LJM;
In 2000, Fastow and Glisan caused the creation of an SPE known as Talon, which thereafter engaged in improper hedging transactions with Enron, enabling Enron to substantially improve its reported financial results. According to the indictment, Talon failed to comply with accounting requirements for SPEs, since Enron promised a guaranteed profit to LJM, which provided Talon’s supposed outside equity;
In 2000, Fastow, Glisan and others engaged in self-dealing at Enron’s expense by earning millions of dollars in profits from a transaction known as Southampton; and
At a time when Fastow was in possession of material non-public information regarding Enron’s poor business performance, he sold large quantities of Enron stock, generating proceeds of more than $18 million.
Enron Broadband Services
The 218-count superseding indictment alleges that the seven defendants caused Enron to issue false and misleading press releases about the capabilities, value, revenue and business performance of EBS, including many that falsely claimed that Enron possessed an advanced, software-driven “intelligent” communications network. The indictment also alleges that the defendants made false presentations to analysts about EBS’s network, products and value in an effort to drive up Enron’s stock price.
The indictment also alleges that Rice, Hirko, Hannon, Yeager and Shelby - who all received shares of Enron stock as part of their compensation - sold off large quantities of Enron stock at huge profits, even as they and others were allegedly making materially false and misleading public statements about EBS.
According to insider trading charges contained in the indictment, at various periods between 2000 and 2001, Rice sold more than $71 million worth of Enron stock; Hirko sold more than $35 million; Hannon sold more than $7.8 million; Yeager sold more than $54 million in stock and derivative options; and Shelby sold more than $36 million worth of Enron stock.
The indictment against Lea Fastow alleges that she conspired with her husband and others in connection with the RADR transaction, first by providing funding to RADR’s supposed equity investors, then deliberately failing to report as income proceeds from the RADR investment. The indictment also alleges that the Fastows jointly failed to report as income the kickbacks they received from payments made by Enron to Chewco.
“Today’s indictments bring to 19 the number of individuals charged to date in connection with the collapse of Enron,” said Leslie Caldwell, the director of the Enron Task Force, former in January 2002 to investigate matters related to the collapse of Enron Corp. “The Enron Task Force’s investigation is very active and ongoing. Many people had a hand in the collapse of Enron, and we fully intend to pursue the evidence to ensure that those who have criminal responsibility are held accountable.”
The Enron Task Force is overseen by President Bush’s Corporate Fraud Task Force, headed by Deputy Attorney General Thompson, and the Criminal Division, headed by Assistant Attorney General Michael Chertoff. The task force consists of a team of federal prosecutors supervised by the Department’s Criminal Division and agents from the FBI and the IRS Criminal Investigations Division. The task force also has coordinated with and received considerable assistance from the Securities and Exchange Commission. The investigation that led to charges announced today was also assisted by attorneys from the Tax Division at the Department of Justice.
“Pursuing corporate fraud and white-collar crime are top priorities for the Internal Revenue Service,” said Acting IRS Commissioner Bob Wenzel. “On many fronts, the IRS is aggressively pursuing corporate and other high-impact cases to ensure all taxpayers pay their fair share.”
“This action is yet another step in unraveling the various strands of fraudulent conduct that perpetuated the Enron myth,” added Linda Chatman Thomsen, deputy director, Division of Enforcement at the U.S. Securities and Exchange Commission. “Any number of people and entities contributed to Enron’s ultimate collapse, and as today’s action as well as our previous actions make clear, we are determined to pursue them, and hold them accountable under law.”
The Enron task force has brought several charges in its investigation, in addition to the charges previously filed against Fastow, Howard and Krautz. In August 2002, former Enron finance executive Michael J. Kopper pleaded guilty to conspiracy to commit wire fraud and money laundering, and is cooperating with the government’s investigation. Former Enron energy traders Timothy N. Belden and Jeffrey Richter pleaded guilty in October 2002 and February 2003, respectively, to conspiracy to commit fraud by manipulating energy prices in the California market, and are cooperating with the government’s ongoing investigation. In September 2002, a federal grand jury in Houston returned an indictment charging three former British bankers with wire fraud in a scheme involving the Southampton special purpose entity. In addition, in November 2002 former Enron finance executive Larry Lawyer pleaded guilty to making and subscribing a false tax return and is also cooperating with investigators.
The task force investigation is active and ongoing.Indictment1