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Thursday, Oct. 3, 2002

In Washington, Deputy Attorney General Larry Thompson said the government intended to ask the court to freeze an additional $11 million of Fastow's assets based on the allegations contained in the Houston complaint.

In total, the government has frozen and will seek the forfeiture of $37 million derived from alleged crimes at Enron.

'Take Away Their Money'

"We aim to put the bad guys in prison and take away their money," Thompson said.

The federal complaint unsealed in Houston said Fastow and others devised a scheme to defraud Enron and its shareholders through transactions with "special purpose entities," or SPEs.

The off-balance sheet SPEs structures allowed Enron to appear more attractive to investment analysts and credit rating agencies, the complaint said.

Fastow and others at Enron allegedly used the SPEs to manipulate Enron's financial results and enrich themselves at Enron's expense, the complaint charged.

Enron enlisted at least one unnamed major financial institution to assist in its financial statement manipulation, the complaint said.

Fastow's chief Enron lieutenant, former executive Michael J. Kopper, pleaded guilty in August to conspiracy to commit wire fraud and money laundering. He is cooperating with the government's ongoing Enron investigation, according to the Justice Department.

Fastow, 40, is the highest-ranking former Enron executive charged in the federal investigation.

The complaint alleges that starting in at least early 1997, Fastow, Kopper and others devised a scheme to defraud Enron and its shareholders through SPE transactions.

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, the complaint said.

Transactions entered into with LJM allowed Enron to manipulate its balance sheet by moving poorly performing assets off the balance sheet by selling them to LJM, the government charged.

The complaint alleged 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 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.

The complaint also alleged 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 this scheme, the Justice Department said, and three British bankers have been charged with wire fraud in connection with their roles in the scheme.

Return of the JEDI

In addition, the complaint charged, Fastow and others proposed the creation of an SPE called 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 alleged that Fastow, Kopper and others at Enron arranged to fund Chewco through loans that were guaranteed by Enron.

Kopper 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, the complaint charged.

Finally, the federal complaint alleged that in May 1997, Kopper and Fastow created two SPEs, known collectively as RADR, to buy part of Enron's interest in certain wind farms in California through purported independent third-party investors known as "Friends of Enron." The investments were actually funded by Fastow, the Justice Department charged.

Kopper told the government that 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 Justice Department said.

Enron filed for Chapter 11 protection last December in the largest bankruptcy in U.S. history at that time, leaving thousands of employees without jobs and retirement funds.

Arthur Andersen LLP, Enron's auditor, was also caught up in the company's trouble when it was convicted in June on a charge of obstruction of justice for shredding Enron documents after learning of a Securities and Exchange Commission investigation.

Copyright 2002 by United Press International.

All rights reserved.

Read more on this subject in related Hot Topics:

Corporate Scandals

Enron

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