Enron Ousts CFO Amid SEC Probe
Enron Corp. ousted Chief Financial Officer Andrew Fastow Wednesday amid a Securities and Exchange Commission inquiry into partnerships he ran that cost the largest energy trader $35 million.
Enron named Jeff McMahon, head of its industrial markets group, as CFO because “it became clear to me that restoring investor confidence would require us to replace Andy,” Chairman and Chief Executive Kenneth Lay said.
Fastow will take a leave of absence.
Shares of Enron, based in Houston, have plunged 80% this year. Third-quarter charges of $1.01 billion from failed investments outside the main commodities trading business wiped out 70% of the profit earned in the last four quarters.
“Investors were clearly not comfortable with exposure to Andy,” said J.P. Morgan analyst Anatol Feygin, who downgraded Enron to “long-term buy” and owns no shares.
Fastow, 39, ran LJM Cayman and LJM2 Co-Investment, two partnerships created by Enron to buy company assets. Enron’s involvement in the financing vehicles cost the company $35 million in third-quarter losses.
Enron also bought back 62 million shares from LJM2 at a cost of $1.2 billion to unwind its investment.
During a conference call Tuesday, Lay said, “I and Enron’s board of directors continue to have the highest faith and confidence in Andy and think he’s doing an outstanding job as CFO.”
Enron announced that Fastow would leave after its stock closed down $3.38, or 17%, to $16.41 in trading Wednesday on the New York Stock Exchange, setting a new 52-week low.
The SEC began an inquiry into Enron’s partnerships Monday. Spokeswoman Karen Denne said it is an informal inquiry that Enron is cooperating with, and that no subpoenas have been received.
The company has formed at least 18 affiliated partnerships and corporations, some of which buy and sell Enron assets such as power plants, records at the Texas secretary of state’s office indicate.
