Aug. 25, 2002, 1:29PM
Targeting Skilling, Lay may prove tough
By MICHAEL HEDGES
Copyright 2002 Houston Chronicle Washington Bureau
RESOURCES
WASHINGTON -- Federal prosecutors said last week that the conviction of Michael Kopper on fraud charges was just the opening act in their pursuit of former Enron executives.
The obvious next target is his boss, former Enron chief financial officer Andrew Fastow, who is referred to by title throughout the criminal information describing Kopper's wrongdoing.
But it will be far more complicated to build a case against former CEO Jeffrey Skilling and former chairman Ken Lay.
"The prosecution will clearly have problems moving much farther than Fastow just on the Kopper case," said Ross Miller, co-author of the book What Went Wrong at Enron.
"It is pretty clear they've got Fastow. The key question becomes, can Fastow get them to Skilling?"
Unlike the cases of Kopper and Fastow, no evidence has surfaced to prove that money was fraudulently diverted from Enron into the pockets of Skilling or Lay.
Prosecutors declined to discuss the timing of a resolution to the Fastow case or what would come after that.
"When we get to a point at which we have a case to bring that's a significant case, we bring the case," said Michael Chertoff, who, as head of the Justice Department criminal division, is one of those calling the shots in the Enron probe. "We want to make sure that we have a case that we can sustain in court."
Kopper's greed was described in court documents filed last week -- he raked at least $12 million out of a series of Enron-related entities.
Kopper said he kicked money from those partnerships back to Fastow.
"There was an arrangement between myself and the Enron CFO (Fastow) whereby I did take some of the proceeds which I received from managing and running that partnership and passed them on to he and his family," Kopper said of Chewco, one of the deals.
Fastow pulled as much as $30 million out of the same partnerships, according to an investigation done by a committee of the Enron board of directors.
In return for being charged on only two counts and a possible light sentence, Kopper signed what some lawyers close to the case described as an extraordinary cooperation agreement.
In it, he promised to meet -- without his lawyers -- prosecutors and investigators at any time they choose.
The Enron task force already has gleaned critical information from Kopper, officials said. That information is likely to lead to Fastow.
Referring to Fastow as "CFO" rather than by name, the documents spell out what the government considers to be illegal activity.
"Starting in at least early 1997, Enron's CFO, Kopper and others devised a scheme to defraud Enron and its shareholders by enriching themselves through the use of certain Enron SPEs (special purpose entities)," the information charging Kopper said.
His testimony would be devastating to his former boss, but Fastow has not been charged yet because prosecutors are gathering more witnesses, said sources close to the investigation.
"They are still marshaling their forces," said Philip Hilder, a former prosecutor who now represents Enron whistle-blower Sherron Watkins. "They want the gun to be fully loaded before they pull the trigger."
A likely next step is to try to get the cooperation of three British bankers charged two months ago with fraud in the Enron case. That scheme, allegedly involving Fastow and Kopper, netted them $7.2 million that properly belonged to their bank, National Westminster.
A senior Justice Department official said that case was moving ahead rapidly.
Documents charging Kopper spelled out how the three bankers conspired with Enron executives, including Fastow, to commit fraud.
"Knowing that Kopper is cooperating, there is just no point in those guys holding out on this," said an attorney involved in the Enron case. "I would imagine there is heavy pressure on them now as the government collects witnesses in the Fastow prosecution."
Other potential witnesses against Fastow include former Enron treasurer Ben Glisan and former company attorney Kristina Mordaunt. As an outgrowth of the Kopper case, the government moved to seize more than $1.6 million in accounts held by Mordaunt and nearly $1 million held by Glisan.
That money was said to be "traceable to the commission of said offense," that is, fraudulent transactions involving Enron-related entities Chewco, Southampton and RADR.
Both Glisan and Mordaunt have denied knowing that money they received from those deals was tainted. Those denials will likely be strongly tested by prosecutors, said sources close to the case.
Mordaunt could not be reached. Glisan's attorney did not return a call for comment.
Glisan already has offered to cooperate with the government, giving it a statement describing what he could tell in return for a deal with prosecutors, sources said.
Fastow spokesman Gordon Andrew said his client declined to comment on allegations described in the Kopper court papers.
If Fastow decides to follow Kopper's lead and reach an agreement with prosecutors, the Enron case could gain momentum, sources said. If he decides to await an indictment and fight in court, the timetable would be stretched into many months, or even years, experts said.
Fastow's decision on whether to deal or fight could well be the key factor determining how the rest of the Enron criminal case unfolds, said sources close to the case.
Some sources say the Kopper plea was a mixed bag for Skilling.
The good news for Skilling is that it shows that Kopper, Fastow and others within the global finance group run by Fastow at Enron were out to defraud the company. And there is no indication Skilling knew that, said lawyers with knowledge of the Enron case.
"The fraud shown so far was contained within the global finance group, and it does not touch Skilling," a lawyer involved in the case said.
But if Fastow decides to become a government witness, he will certainly be grilled extensively on what Skilling knew about a wide range of potentially fraudulent activities at Enron.
Skilling's attorney, Bruce Hiler, declined to comment for this story.
Skilling was Fastow's superior when the CFO structured deals that were used to inflate revenue and keep debt off company books, misleading investors and analysts about Enron's financial health.
When Skilling testified before Congress in February, he said that he did not know the details of Fastow's deals and didn't realize they were improper.
"The question becomes, shouldn't a smart guy like Skilling have been able to connect the dots?" Miller said.
"Everybody has said Skilling's `ignorance' defense doesn't make sense. But unless Fastow or somebody else contradicts him, it will be hard to prove it," said an attorney.
Kopper's statement at his plea and the court documents filed in the case do not directly affect Skilling or Lay, experts said.
And even if Fastow became a witness against him, the government would greatly prefer to have some written documentation or evidence to buttress a potential case against Skilling.
"We know Skilling was very careful about what he signed," Miller said. "He could have been very careful to close off any investigative avenues to prosecutors."
And the Kopper case has shown no motive for Skilling to have committed fraud, experts said.
"The Kopper stuff doesn't show dollars going into Skilling's pocket," said one source. "He profited in other ways, through bonuses, stock options and stock that was more valuable because the company's worth was inflated. But that is harder to prove to a jury as motive."
As for Enron's former top official, Ken Lay, the Kopper case sheds little illumination on whether he eventually will be charged, experts said.
"It seems clear from the court documents that those involved in the Kopper fraud were trying to hide it from the board of directors," Miller said.
Lay's assertion that he didn't know Kopper and wasn't aware of any wrongdoing by Fastow is unshaken by the Kopper guilty plea, he said.
"A key thing to remember is that, unlike in some companies, Fastow as CFO was not on the board at Enron. That puts a lot of distance between him and the people on top," Miller said.
Lay's attorneys did not return calls for comment.
The Justice Department appears reconciled to a protracted Enron investigation, in which the Kopper case proves to be one branch among many.
"From my experience as a prosecutor and as a defense lawyer, many of these cases take years to develop," said Deputy Attorney General Larry Thompson this week.
"With respect to the Enron task force, this is the third conviction and our sixth charge in a very complicated matter that's only been going on for, I think, seven to eight months. So I'm pleased with the progress of this investigation. I know our FBI agents and our prosecutors are working very hard." |
