(*Editors Note | Lost in the Bush Administration's desperate bid to keep the nation focused on War at
all costs is their degree of involvement with Enron. The direct connections extend to every corner of the
Administration. From Thomas White, former Enron Executive now appointed by George W. Bush as
secretary of the Army; to Ken lay financing Bush's 2000 presidential run, to Enron Executives being
ushered into the white house to plan the nations energy policy. We can clearly see the importance of the
Iraqi issue to the White House. If the nation ever paid attention to what they were doing in the back room
the Republican party would be swept to the fringe in November. -- ma)
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Case Against Fastow Points Higher
Complaint Seen as Foundation for Prosecution of Top Enron Executives
By Washington Post Staff Writers
Thursday, October 3, 2002; Page E01
The criminal complaint filed yesterday against Andrew S. Fastow focuses on his role as the architect of
the financial engineering that led to the failure of Enron Corp. But the details of the charges also aim the
investigation at other key figures atop the corporate hierarchy.
Fastow, the Houston energy company's former chief financial officer, was charged with fraud and
conspiracy for his role in concealing Enron's ballooning debt in the LJM partnerships he ran. The complaint
also for the first time cites by title, though not by name, several other key figures in the case -- including
the former chief accounting officer, Richard A. Causey, and two former treasurers, Jeffrey McMahon and
Ben Glisan Jr.
Legal experts said yesterday that the government's expanded allegations -- based in part on testimony
from Michael J. Kopper, a former close associate of Fastow's who pleaded guilty to fraud charges in August
-- also set a foundation for a potential case against Kenneth L. Lay, Enron founder and former chairman and
chief executive, and Jeffrey K. Skilling, his successor as CEO.
Causey, like Fastow, reported directly to Skilling. Both were part of the team Skilling assembled when
he took over day-to-day control of the company as chief operating officer in 1997.
According to the complaint, Enron's chief accounting officer had an undisclosed agreement with Fastow
when the off-the-books LJM partnerships were set up in 1999. The two allegedly agreed that Enron would
protect LJM investors from any losses -- a promise that would invalidate Enron's use of the partnership to
hide its debt.
Causey was the chief accounting officer at the time. Reid Weingarten, Causey's attorney, declined to
comment yesterday. Weingarten has said previously that Causey's actions complied fully with accounting
rules.
The Fastow complaint refers to both McMahon and Glisan in describing what it called a "sham
transaction" Enron made in late 1999 with a financial institution identified in Senate hearings as Merrill
Lynch & Co. The charges say Enron's then-treasurer -- McMahon -- and Fastow contacted the bank "to
pressure it to buy" a $28 million interest in the project, a group of power-generating barges in Nigeria. The
sale enabled Enron to move the troubled assets off its books before the end of the year, but Enron had
secretly agreed to buy them back. That would have nullified Enron's accounting maneuver.
William D. Dolan III, an attorney for McMahon, declined to comment.
A May 11, 2000, e-mail from an Enron employee who later became treasurer -- Glisan -- said that Enron
was obligated to get Merrill out of the deal before June 30, 2000.
Merrill has said it was unaware of any buyback agreement.
Glisan was fired by Enron when it learned he had made about $1 million in one of Fastow's LJM deals.
McMahon, who became CEO of Enron briefly, resigned earlier this year under pressure from creditors in
Enron's bankruptcy case.
Yesterday's complaint didn't claim that either Skilling or Lay was aware of the secret agreement
between Fastow and Causey over Enron's LJM deals.
But the charges did state that Enron's chief executive, together with Fastow, Causey and other
executives, misled Enron's board of directors about the purpose of the LJM partnerships that Fastow
created. Lay was CEO at that time, although the complaint filed yesterday does not name him.
The complaint also cites a memo, written by an unnamed lawyer at Credit Suisse First Boston,
concerning what top Enron executives knew about a Fastow transaction code-named Southampton that he
and others allegedly used to cheat Enron out of $13.3 million in 2000.
According to the memo, Causey told CSFB that Enron's CEO -- Lay, at that time -- knew of and
approved the sale of LJM assets to a partnership set up by Enron employees. The description would fit the
Southampton deal. Lay told investigators for Enron's board that he was unaware of such investments by
Enron employees.
Lay's attorney, Michael Ramsey, said last night that Lay didn't mislead the board and didn't know about
Southampton until it was disclosed this year. "There are no directors that say Ken Lay misled them about
LJM," he said.
Skilling, Enron's CEO in the first half of 2001 and its president before that, testified before Congress that
he knew nothing about accounting violations or false financial statements.
If financial fraud by Enron executives can be proven, then the question is whether Lay and Skilling were
aware of it or saw warnings of misconduct that they did not pursue, said former U.S. attorney Dan Hedges,
a Houston lawyer. "Was the fraud of such an obvious nature that they should have recognized it?" he said.
"If there were red flags all over the place, and you decide you don't want to know about that, I don't think
you are insulated," said Robert Prentice, a University of Texas professor. "Then I think you have criminal
liability."
The Justice Department had previously alleged that Fastow used LJM deals to enrich himself and
associates. But prosecutors now contend that Fastow -- joined by Causey and others -- arranged to sell
troubled Enron assets to LJM to hide problems from investors and meet profit targets expected by Wall
Street.
Enron, which is reorganizing its operations, could still face criminal or civil charges based on the
allegedly illegal activities of its officers. An attorney for the company said yesterday that the firm should not
be punished for the actions of a few rogue executives.
"It is clear from both the criminal complaint and the civil SEC filing that Enron was a victim," said lawyer
Robert S. Bennett. "Its board was deceived and its code of ethics was violated. The company is continuing
its full cooperation with the government."
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