Originally created 01/15/04

Former Enron finance chief pleads guilty

HOUSTON -- Andrew Fastow, chief architect of the shady, off-the-books deals that brought down Enron, pleaded guilty along with his wife Wednesday in a deal that could take prosecutors to the top of the corporate ladder at the scandal-ridden company.

The former finance chief agreed to a 10-year prison sentence and will help prosecutors build a case against the executives who once occupied the most opulent offices on the company's top floor: former chairman Kenneth Lay and former CEO Jeffrey Skilling.

"I and other members of Enron senior management fraudulently manipulated Enron's publicly reported financial results," Fastow said in a statement, adding that the purpose was to mislead investors and inflate the company's stock price and credit rating.

Fastow's wife, Lea, pleaded guilty to a tax charge related to Enron's ill-gotten gains. Lea Fastow, 42, was Enron's assistant treasurer.

The Fastow plea deals had stalled last week after a judge refused to guarantee Lea Fastow a five-month prison sentence, as agreed to with prosecutors.

Her attorney said the couple insisted on the five-month sentence to ensure that their two young sons have at least one parent at home. U.S. District Judge David Hittner demanded that he retain the right to alter Lea Fastow's term, and it was not immediately known what sentence he would order.

Andrew Fastow, 42, is the highest-ranking Enron executive charged in the 2001 collapse of the Houston-based energy company. Without a plea, he would have gone to trial on 98 counts of fraud, money laundering, insider trading and other charges.

Prosecutors say Fastow masterminded a sea of partnerships and tangled financing deals that hid Enron debt and inflated company profits while funneling millions of dollars to him, his family and selected friends. The partnerships had names like LJM (the first initials of Fastow's wife and two sons) and Chewco (after the "Star Wars" character Chewbacca).

Some experts believe the plea could break open the case against Lay and Skilling.

"Unquestionably, this is the breakthrough that the government has been pursuing," said Robert Mintz, a former federal prosecutor and an expert in white-collar crime. "There is nobody besides Fastow who can make this case for the government and that's why they have been pursuing him for so long and so aggressively."

Enron declared bankruptcy in December 2001 amid mass layoffs, leaving investors and retirees stuck with worthless stock. In the following months, WorldCom, Global Crossing, Adelphia Communications and others suffered a similar fate as investigators uncovered a raft of accounting failures across corporate America.

Enron also became a source of ammunition for Democrats because of President Bush's close ties to Lay, a major campaign backer.

Lay and Skilling have steadfastly maintained their innocence. Lay's attorney, Michael Ramsey, said Wednesday that Lay has no worries if Fastow tells the truth.

Bruce Hiler, Skilling's attorney, said his client had done nothing to merit charges.

"We understand the pressure to enter a plea rather than stand trial in the poisoned atmosphere that has been created around Enron, but that doesn't change the truth as to my client," Hiler said.

Former company insiders have said Fastow's aggressive and inventive approach to structuring deals appealed to Skilling. After CFO magazine showered Fastow with the "Excellence Award for Capital Structure" in 1999, Skilling told the publication: "Andy has the intelligence and the youthful exuberance to think in new ways."

Fastow said through his lawyers when he was initially charged in October 2002 that he never believed he was committing any crime.

"Enron hired Andy to arrange off-balance sheet financing. Enron's board of directors, its CEO, and its chairman, directed and praised his work. Accountants and lawyers reviewed and approved his work," his lead attorney, John Keker, told reporters at the time.

Fastow and Lay, among others, declined to testify before a U.S. House committee looking into the Enron collapse, but Skilling did answer questions in February 2002. He said he knew of no problems at Enron when he abruptly resigned in the summer of 2001, citing family reasons.

Enron was the nation's seventh-biggest company in 2001, and its bankruptcy was the largest such filing in U.S. history at the time. Its stock once traded at above $90, but sank to mere pennies amid the collapse.


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