The mastermind behind Enron Corp.’s infamous fraud pleaded guilty yesterday to two counts of conspiracy and accepted a 10-year jail sentence in a deal that enables federal prosecutors to focus their sights on Enron’s top brass: former chief executives Kenneth Lay and Jeffrey Skilling.
In pleading guilty in a Houston courtroom, Andrew Fastow, whose complicated financial constructs turned into a house of cards that sent the energy giant plummeting into bankruptcy in December 2001, promised to cooperate with prosecutors and testify against “co-conspirators” — as yet unnamed corporate officers who worked with him to devise the schemes that defrauded Enron investors of nearly $70 billion in stock value.
“I and other members of Enron senior management fraudulently manipulated Enron’s publicly reported financial results” with the goal of misleading investors and inflating the company’s stock price, the former chief financial officer said in a statement at his plea hearing before the U.S. District Court in Houston. Mr. Fastow has said his bosses approved his work.
Both Mr. Skilling and Mr. Lay, a friend of President Bush’s and top contributor in the 2000 presidential campaign, maintain their innocence and insist they will not be hurt by any testimony provided by the disgraced but once nationally celebrated rising star in finance.
“I’m encouraged,” Mike Ramsey, a lawyer for Mr. Lay told reporters at the court. “This moves us closer to resolution. There is nothing that I fear unless someone says something that is untrue. I have no reason to expect that.”
Mr. Fastow, 42, whose machinations enabled him to reap nearly $80 million in illicit profits, agreed to forfeit $29 million to prosecutors and pay another $23 million in fines to the Securities and Exchange Commission to settle a parallel civil-fraud case. Prosecutors agreed to drop 96 of the 98 criminal counts they had leveled against Mr. Fastow.
“The Andrew Fastow plea and cooperation agreement opens wide a window into the fraudulent practices of Enron’s senior management,” said Assistant Attorney General Christopher A. Wray.
“The crime in Enron hurt tens of thousands of people. It took jobs, it took life savings, it broke spirits. We wish we could undo that harm, but we can’t,” said Deputy Attorney General James Comey.
He added that he hopes the stiff sentence for Mr. Fastow, which includes no possibility of parole despite his cooperation, “serves as a warning to other morally challenged executives” and deters such crimes in the future. “We have driven a very hard bargain with Mr. Fastow.”
The Enron debacle in November 2001 was the first in an unprecedented string of corporate scandals that led to the biggest overhaul of securities laws and corporate governance since the 1930s. It triggered governmentwide investigations and a season of highly publicized hearings that continue to influence Washington politics and policy.
“Of all the cases being investigated … the one that has come to symbolize in this country, and around the world, corporate misconduct and the devastating consequences of that misconduct, is the Enron case,” Mr. Comey said.
Mr. Fastow’s wife, Lea, also 42 and a former Enron assistant treasurer, pleaded guilty yesterday to a single count of filing a false tax return as part of an overall deal with prosecutors. She received a five-month prison sentence and a year of supervised release, including five months of house arrest.
U.S. District Judge David Hittner will decide later whether to accept the sentencing deal. The Fastows remain free on bond and are scheduled for sentencing in April.
The Fastow plea arrangements had stalled last week after Judge Hittner refused to ratify the deal without having a chance to review it.
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