'Noose is tightening' in U.S. probe
Ex-Enron exec to plead guilty
By MICHAEL HEDGES
Houston Chronicle Washington Bureau
Aug. 21, 2002, 2:04AM
Former Enron executive Michael Kopper will plead guilty today to the first federal criminal charges against an ex-Enron executive, energizing the sprawling investigation into the company's collapse, sources said.
Kopper, 37, a protégé of former Enron chief financial officer Andrew Fastow, will admit to conspiracy to commit wire fraud and conspiracy to illegally launder money. As part of the plea, to be entered at a hearing in Houston federal court, he will agree to cooperate with the Enron probe, sources said.
The agreement could give prosecutors critical leverage over Fastow, the architect of transactions that helped send Enron spiraling toward bankruptcy last year, sources said.
Under the agreement, Kopper will forfeit $12 million obtained in Enron-related deals and could face prison time and heavy fines, sources said.
The conspiracy to commit money laundering charge carries a 10-year maximum prison sentence, the wire fraud charge five years.
In a related matter, the Securities and Exchange Commission will file a civil complaint against Kopper charging him with securities fraud, sources said.
Kopper's plea was viewed as a crucial step forward.
"The noose is tightening. Clearly the government is making important progress, especially if they can get Kopper to cooperate in the investigation of Fastow," said Philip Hilder, a former federal prosecutor who now represents Sherron Watkins, an Enron executive who tried to alert the company to Fastow's accounting practices.
"This is big. It is a substantial development that obviously helps in the case against Fastow," said an attorney involved in the Enron case. "This could be a critical breakthrough the government has been waiting for."
Allowing Kopper to agree to plead guilty before being indicted indicates the government values the information he can provide, experts said.
"They would not work a deal with Kopper unless they were confident that he had been thorough and forthcoming with them about his knowledge of inside workings at Enron," said an attorney involved in the Enron investigation.
It will take time to see how the agreement with Kopper may affect the probe of the company or such executives as former chairman Ken Lay and former chief executive Jeff Skilling, said those close to the case.
Kopper's attorney in Washington did not return calls for comment. His attorney in Houston, Eric Nichols, would not comment.
Bryan Sierra, a spokesman for the Justice Department's Enron task force said he had no comment on the Enron investigation.
SEC spokeswoman Christi Harlan said, "I cannot confirm or deny" that Kopper would also be charged in a civil fraud complaint by that agency.
An Enron employee since 1994, Kopper headed its Global Finance division. He came to be considered Fastow's principal deputy in designing and managing the off-the-books partnerships that helped sink Enron.
Those deals included the formation in late 1997 of a confidential partnership called Chewco Investments L.P. that eventually cost the company hundreds of millions of dollars, as well as an ill-fated venture called Southampton.
"He advanced very quickly, primarily through the influence of Andy. He clearly rode Andy's coattails. He also had a fairly close relationship with Skilling," an Enron executive said Wednesday.
Kopper, conspicuous inside the company for his Giorgio Armani and Ermenegildo Zegna suits, was seen as Fastow's right arm.
"Michael had his dark side. When he needed to wield his influence, he played the Andy card," the Enron official said.
"He could be difficult to take on if you questioned the way he wanted to do things."
He would discuss the legal issues of Enron's business deals "in a very cavalier manner," as if he found the details tedious, said a former co-worker.
That ex-Enron executive said Kopper and Fastow effected a strikingly similar attitude.
"They felt they were almost untouchable. They thought they were smarter and better than everybody else," he said.
Fastow spokesman Gordon Andrew declined to comment for this story.
Kopper and Fastow were key players in transactions that federal officials and an Enron board investigation have identified as critical to the company's downfall, including Chewco and Southampton.
Chewco, named after the Star Wars character Chewbacca, was set up to keep more than $600 million in debt off Enron balance sheets. It was a precursor to other partnerships run by Fastow, such as LJM1 and LJM2.
Instead of finding outside investors for Chewco, Fastow assigned Kopper to run it. Using false names to hide their identities, Kopper and his domestic partner, Continental Airlines employee William Dodson, put up $125,000 in cash, and borrowed $11 million from Barclays Bank -- loans guaranteed by Enron.
When the partnership was dismantled in early 2001, Kopper and Dodson netted $10.5 million, roughly 100 times their initial investment.
But later that year, when Enron's outside accountants discovered that Kopper and Dodson's initial stake in the Chewco did not reach the 3 percent threshold required for the partnership to be considered independent, Enron was forced to restate earnings, taking a $405 million loss, which helped propel its slide into bankruptcy.
Kopper also scored big as part of a venture called Southampton. In late June, three British bankers were charged with fraud for their part in the deal.
The three allegedly got their bank to sell its interest in Southampton for about $1 million, far less than its book value, then resold it to Enron, netting $7.3 million, the Justice Department charged.
The three, Gary Steven Mulgrew, Giles Darby and David Bermingham, have refused to discuss the case, through their attorney, John Reynolds.
They are believed to be still in Britain.
The filing of those charges seemed to make it clear that Kopper and Fastow were the targets of the federal investigation, those close to the case said.
In early 2000, Fastow and Kopper each turned a $25,000 investment in Southampton into a $4.5 million gain within a few months, according to a special report released earlier this year by the Enron board.
Former Enron treasurer Ben Glisan and company lawyer Kristina Mordaunt also made huge returns from minimal investments in Southampton.
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Chronicle reporters Mary Flood, Bill Murphy and Lisa Teachey contributed to this story.
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