Enron’s Ex-Finance Chief Surrenders

Andrew S. Fastow, the alleged financial mastermind behind the Enron Corp. scandal, turned himself over to the FBI on Wednesday to face criminal charges that he pocketed millions of dollars while orchestrating a maze of illegal partnerships and secret deals.

The development caps a stunning fall for Fastow, 40. Once one of the most respected chief financial officers on Wall Street, he has become a symbol of corporate greed.

Still unknown is whether Fastow will turn on his former bosses. The criminal complaint begins a dance between Fastow and federal prosecutors over whether he will attempt to bargain away some charges by offering to implicate former Enron Chief Executive Jeffrey K. Skilling and former Chairman Kenneth L. Lay. Fastow also could implicate Wall Street bankers who assisted in Enron’s deals.

So far, Fastow has refused to cooperate with the government’s probe of the fallen Houston energy giant, according to federal prosecutors.

By filing a criminal complaint and not moving immediately with an indictment, federal prosecutors are giving Fastow a last chance to cooperate, attorneys say. Under law, the government must file a formal indictment within 30 days. After that, it becomes much harder for both sides to cut a deal to reduce the charges against Fastow.

“This gives them a little more flexibility,” said Eric Holder, a deputy attorney general during the Clinton administration. “The government is looking for cooperation from him as it attempts to work its way up the ladder.”

Deputy Atty. Gen. Larry Thompson, who is part of a multi-agency Enron task force that includes the Securities and Exchange Commission, the FBI and the Internal Revenue Service, said: “Fastow and his co-conspirators systematically and thoroughly corrupted the business of one of the largest corporations in the world.” The SEC filed its own civil complaint Wednesday against Fastow in U.S. District Court in Houston.

Thompson, speaking in Washington, alleged that Fastow siphoned $21 million in ill-gotten gains.

In a statement Wednesday, Fastow’s attorney said his client was only doing his job, with the knowledge and approval of his superiors.

“Enron hired Andy to arrange off-balance-sheet financing,” said John W. Keker, his attorney. “Enron’s board of directors, its CEO and its chairman directed and praised his work. Accountants and lawyers reviewed and approved his work.... He never believed he was committing any crime.”

Though Skilling and Lay were not named in the government’s complaint, it accuses Enron’s “chief executive officer” of making “false representations” to Enron’s board about how transactions with Fastow were approved and how much profit Fastow was permitted to earn on the deals. Lay and Skilling each served as CEO during the relevant time periods, setting off a guessing game about which one was referred to in the complaint. Both have denied knowledge of any wrongdoing in the past.

Bruce Collins, an attorney for Lay, said he did not believe the reference applied to his client and that there was nothing in Enron board minutes or subsequent investigations that suggested that Lay misled his fellow directors.

“If anything, Mr. Lay was in the same position as the board,” Collins said.

Skilling’s attorney declined to comment.

Fastow ultimately could face as many as 45 years in prison, depending upon the ultimate charges.

If he does not cooperate, Fastow risks becoming the highest- ranking Enron officer to be charged in the case, and he probably would bear the brunt of the government’s resources, attorneys watching the situation said. The threat of charges against his wife, who allegedly received kickbacks, also might be used by prosecutors to pressure Fastow, they added.

Enron filed for bankruptcy protection in December amid a wave of accounting problems and investor panic over the company’s use of off-the-books partnerships to hide debt and boost profit.

Rather than the creative accounting methods or “gray areas” once described by Fastow to explain Enron’s practices, the government’s 35-page complaint alleges outright fraud, money laundering and deceit.

The partnerships, known as LJM, Southhampton and Chewco, were used by Enron to meet financial targets on Wall Street by moving money-losing investments, including a power plant in Brazil and electricity-generating barges off the coast of Nigeria, off its books, according to the complaint. In another deal, the government said, Enron used a Fastow-controlled partnership to disguise the company’s interest in wind farms in California, thus enabling the projects to continue to qualify for certain financial benefits.

The complaint accuses Fastow of eliciting kickbacks for himself, his wife and two young sons; lying to Enron’s board of directors and attempting to hide transactions from its auditor, Arthur Andersen; and backdating contracts to lock in profits based on past stock prices, a practice known as “Enron time machines.” In all, the government alleged, Fastow and his friends took in more than $37 million.

A pale Fastow, wearing a charcoal suit and red tie, arrived early Wednesday morning at the FBI’s offices in Houston in the back seat of his lawyer’s Volvo. He waded silently through a crush of reporters and surrendered to federal investigators. He emerged with hands cuffed behind his back, climbed into a government Ford Taurus and was driven to the federal courthouse.

As he waited for his hearing to begin, Fastow sat straight and tight-lipped in the empty jury box. When he faced U.S. Magistrate Judge Marcia A. Crone, he answered, “Yes, ma’am” and “yes, your honor.”

He was released on a $5-million bond, secured by $3 million in cash and deeds to his Houston home, a vacation property and his parents’ house.

Last month Fastow and his wife were forced to surrender their passports. The Fastows are selling an 11,500-square-foot home they are building in one of Houston’s richest neighborhoods.

The government said Wednesday that it planned to seize $11 million more of Fastow’s assets. In total, the government will seek the forfeiture of more than $21 million from Fastow, Thompson said.

Fastow has been virtually silent throughout the Enron scandal, granting no interviews and issuing no apologies or explanations. When called before Congress earlier this year, he asserted his constitutional right not to testify.

But government investigators believe that behind the half-smile he often wears in public is a treasure-trove of information about exactly what happened at Enron and who knew about it. Just as Fastow’s protege, Michael J. Kopper, pleaded guilty in August and implicated Fastow in several deals, Justice Department attorneys hope Fastow will provide information that may lead to indictments of Skilling, Lay and other top officers.

“Our Enron investigation is not over,” said Linda Thomsen, deputy director of enforcement at the SEC. “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.”

Wednesday’s complaint mostly covered familiar territory because many of Fastow’s partnership deals had been reported. Still, the document presented evidence of Fastow’s push to enrich himself and other investors at Enron’s expense.

The government, for example, alleged that Fastow had an undisclosed agreement with Enron’s chief accounting officer, Richard A. Causey, that guaranteed that the Fastow-controlled LJM partnership would be compensated for any losses it suffered. An attorney for Causey did not return phone calls.

Thompson alleged that Fastow benefited from the “active cooperation of a large financial institution” that allowed Enron to park a money-losing Nigerian power barge on the bank’s books. The bank, not named in the complaint, was revealed in congressional hearings to be Merrill Lynch & Co. Officials said Fastow pressured Merrill to temporarily buy a $28-million interest in the barge, promising to repurchase it at a later date.

Merrill issued a statement Wednesday denying wrongdoing, although also distancing itself from Enron.

“Merrill Lynch never knowingly assisted Enron in falsifying its financial results,” the investment bank said. “Had we known in 1999 what is known today about the company, we would not have done business with them.”

Thompson declined to say whether Lay, Skilling, Causey or Merrill Lynch were targets in the investigation. Merrill Lynch said in an August SEC filing that it had been told by Justice Department officials that it was not a target.

Convincing a jury of Fastow’s guilt may prove difficult given the complexity of the case, legal experts and government observers say.

“These are some of the most intricate, complex facts I’ve ever run into,” said Rep. W.J. “Billy” Tauzin (R-La.), whose House Commerce Committee has investigated numerous corporate meltdowns.

At Fastow’s court appearance in Houston, Diana Peters, 52, applauded softly when he was led away. She has been unemployed since she lost her job in Enron’s information technology department last year.

“I have so waited for this day,” Peters said. “It didn’t just affect me; it affected my whole family, the whole community. And he needs to go to jail. People who steal go to jail.”

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Sanders reported from Washington, Stack from Houston. Times staff writer Nancy Rivera Brooks in Los Angeles contributed to this report.