A Method Becomes Clearer in a Methodical Investigation
By KURT EICHENWALD
The New York Times
HOUSTON, Aug. 21 — Throughout the summer, politicians and others have expressed impatience with the Enron investigation, demanding to know why no one from the company had yet been charged with a crime — particularly when executives involved in other corporate scandals were being led away in handcuffs.
But even as the criticism was building, federal investigators were behind closed doors with Michael J. Kopper, a former Enron finance executive, who spelled out in excruciating detail all of the evidence he could provide to aid in the prosecution of some of his erstwhile colleagues and friends.
Indeed, to legal experts, the breakthrough from the Kopper plea and the detailed allegations submitted in court records filed today demonstrate how wrongheaded much of the criticism of the investigation's pace has been and provides the strongest signals yet for where the case is headed.
"The biggest mistake that the government could make would be to start bringing charges just to satisfy public opinion or political pressure," said Thomas Ajamie, a securities law expert with the firm of Schirrmeister Ajamie in Houston. "They need to move forward, making sure they have all their facts together. And from the Kopper plea, it appears that they are using a methodical, calculated, steady strategy."
After prominent arrests in the comparatively straightforward cases involving accusations of fraud at companies like Adelphia Communications and WorldCom, the plea deal with Mr. Kopper might seem to be mildly insignificant. But legal experts said it demonstrated that prosecutors were using a strategy that should strike fear in anyone who committed a crime at Enron — particularly if they did so with Mr. Kopper.
The reason is simple: the arrests in the other cases were ends in themselves, with the central participants in possible wrongdoing brought in on charges that they contested. But the deal with Mr. Kopper demonstrates that prosecutors in the Enron case are relying on a strategy in which lower level executives are "flipped" to provide evidence against those higher up.
The investigation of Enron is taking time, lawyers said, because the case is suffused with complexity.
"The allegations at WorldCom and Adelphia are addition and subtraction," said Robert A. Mintz, a former federal prosecutor who is now a partner with McCarter & English. "Enron is calculus."
But with an insider like Mr. Kopper strongly motivated to spell out every detail of what he knows to reduce his potential sentence, the government can begin moving up the line.
"This gives them the critical insider to link all of the paper together," said Stephen Ryan, a former federal prosecutor who is now a partner at Manatt, Phelps & Phillips. "They may have a million documents, but you absolutely have to have the critical human linkage of what people said when they were at a meeting, what actions they proposed to take that aren't reflected on the paper."
The direction of the inquiry in coming weeks is already becoming apparent.
The plea establishes for the first time that there were at least two distinct levels of potential fraud involving Enron and its partnerships. The company, government officials said, was deceiving Wall Street and regulators by using the partnerships to shift assets off its books and to improperly pump up earnings. At the same time, based on documents filed with the court, Enron executives were using those same partnerships to defraud the company.
Documents in the case and Mr. Kopper's statements in court demonstrate that the government has obtained a wealth of evidence from the deal that could be used against Andrew S. Fastow, Enron's former chief financial officer. He controlled the complex, off-the-books partnerships that played the central role in collapse of Enron. For example, Mr. Kopper stated in court today that he provided kickbacks to Mr. Fastow from money that he got for managing Chewco, one of those partnerships.
The avenues of investigation spelled out in the documents also make clear that prosecutors may have particularly effective leverage to push Mr. Fastow to strike a plea deal. Money from what his former colleague now says were illegal dealings went into accounts in the names of Mr. Fastow's own family and friends. A result, lawyers said, is that those people now also face investigation and potential liability.
"If Fastow's smart, and he is, and if his lawyers are smart, they should be trying to cut a deal right now," said John J. Fahy, a former federal prosecutor and lawyer for the Securities and Exchange Commission.
Other associates of Mr. Kopper also face potential liability. Enron insiders, for example, were involved with a partnership known as Southampton, which Mr. Kopper effectively admitted today was used to take millions of dollars that rightfully belonged to Enron.
Some participants in that deal — including Ben F. Glisan Jr., the company's former treasurer — tried to reach deals with the government earlier this year, but investigators turned them away because they were dissatisfied with what the deal participants were offering. Now, legal experts said, the prices any potential defendants must pay if they want to obtain a deal have significantly gone up.
"The deal is always less attractive for the second or third person in the door than it was for the first," Mr. Ryan said.
Mr. Kopper also provides the government with important new avenues of investigation. He has, for example, described to investigators conversations that open areas of inquiry regarding other senior Enron executives, people involved in the case said. Already, investigators are said to be following up on those leads.
Lawyers and people involved in the case, however, cautioned that while the plea by Mr. Kopper is strategically significant, the Enron case is not about to wrap up with a quick series of plea agreements. The next big break in the case could be months away, they said, as prosecutors continue the slow process of putting the next block into place.
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