- The Washington Times - Thursday, August 22, 2002

The Justice Department yesterday moved to seize the property of Enron Corp.'s financial mastermind, former Chief Financial Officer Andrew Fastow, signaling that he is likely to be the next target in the department's investigation of the former energy giant.

As part of a criminal action and cooperation agreement in which Mr. Fastow's former right-hand man, Michael J. Kopper, admitted participating in illegal accounting schemes, the department took the unusual step of seeking to freeze $22 million in financial accounts in the name of Mr. Fastow and his family, as well as seize his posh home in Houston.

That money, and $12 million that Kopper agreed to forfeit yesterday for his part in the crimes, would go into a restitution fund for Enron investors and employees who lost billions of dollars because of the illegal schemes.

"This plea marks a significant milestone," said Deputy Attorney General Larry Thompson, noting that the government intends not only to put behind bars Enron officers who duped the public, but also to fund "relief for defrauded investors."

The Securities and Exchange Commission will distribute the "ill-gotten gains" to investors and employees who bought Enron stock and lost money as a result of strategies Kopper and Mr. Fastow devised to hide the company's debts and losses, Mr. Thompson said.

The U.S. District Court in Houston, however, must agree to the seizures, which legal analysts said are an unusually aggressive tactic most often used in cases against drug dealers.

The SEC, in a separate securities fraud settlement with Kopper yesterday, like the Justice Department, identifies Mr. Fastow as "Enron's CFO" and refers to him as an unindicted co-conspirator in three schemes from which the two financial officers illegally earned tens of millions of dollars.

"This case is but a first step, albeit a vital one, in our effort to hold responsible and to bring to justice those who participated in this massive betrayal of the investing public's trust," said SEC enforcement chief Stephen M. Cutler.

The Enron collapse into bankruptcy in December was the first of an unprecedented rash of corporate scandals and investigations embroiling investors and the stock market this year.

The Bush administration has been criticized by congressional Democrats for moving slowly on the Enron investigation, which was initiated in October, while displaying unusual haste in prosecuting officials from WorldCom, Adelphia Communications Corp., ImClone Systems Inc. and other corporate wrongdoers this year.

The court actions yesterday detailed several crimes committed by Kopper and others at Enron, but Mr. Cutler said that "much of the story remains untold" and seemed to hint at more spectacular moves ahead.

"We anticipate that there will be other cases and that the information Kopper will provide will be of great assistance to the government as it proceeds," he said.

Many analysts expect the government to pursue former Enron Chief Executive Officer Jeffrey Skilling, as well as Mr. Fastow, though the court papers yesterday contained no obvious references to Mr. Skilling. He told Congress that he knew nothing of the schemes.

Another potential, but less likely, target is Enron's founder and former Chairman Kenneth L. Lay, a friend and top contributor to President Bush. Mr. Lay told internal company investigators that he did not know Kopper and had no idea of his and Mr. Fastow's actions. Mr. Lay forced Mr. Fastow out of the company in the fall.

More potential targets identified in the court papers are Ben Glisan Jr., Enron's former treasurer, who was said to earn about $1 million from the accounting schemes, and Kristina Mordaunt, an Enron lawyer who reportedly earned $1.7 million.

While Enron's accounting maneuvers were complicated and opaque even to the financially well-versed, Mr. Cutler said they followed a discernible pattern.

Starting in early 1997, he said, Kopper, Mr. Fastow and several friends, relatives and employees of the financial officers "used complex structures, straw men, hidden payments, and secret loans to create the appearance" that various off-book partnerships of Enron were independent, when they were actually controlled by Kopper and Mr. Fastow.

The deceptions enabled Enron to hide billions of dollars in debts and losses from investors and avoid regulatory restrictions, he said. The two financial officers became independently wealthy through the strategy.

One development yesterday that puts tremendous pressure on Mr. Fastow is Kopper's admission that he provided millions of dollars in kickbacks to Mr. Fastow out of profits earned managing and investing in the off-books partnerships.

The three deals detailed in the court papers yesterday were Southampton, Chewco and RADR, a previously undisclosed off-book transaction aimed at hiding Enron's wind power investments.

Analysts said the government may be putting the heat on Mr. Fastow to win his cooperation in going after Enron's senior officers. Mr. Fastow, like Kopper, is most likely to face the possibility of stiff prison terms and forfeitures, even if he cooperates.

Under the guilty plea Kopper entered before a U.S. District Court in Houston yesterday, he could face up to five years in prison for wire fraud and an additional 10 years for money laundering. But prosecutors have promised to seek reduced sentences if he shares all he knows.

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