Whittling away at evidence
With indictments and guilty pleas in hand, Enron prosecutors expect more
charges in second year
chron.com
By TOM FOWLER and MARY FLOOD
Copyright 2003 Houston Chronicle
Prosecutors are steadily closing in on top officers of Enron as their
investigation of the bankrupt company enters its second year.
Grand juries in Houston and California have heard testimony about
everything from how executives represented the finances of the
broadband division to possible insider-trading activity by former
Chairman Ken Lay to manipulation of the California energy market.
The investigation has yielded four guilty pleas, one jury conviction
and four other indictments, with more charges expected soon.
"With the convictions of Arthur Andersen, David Duncan, Michael
Kopper and Larry Lawyer, as well as the indictments of Andrew
Fastow and three British bankers, the team of agents and attorneys
who make up the Enron Task Force accomplished a great deal in
2002," said Enron Task Force director Leslie Caldwell. "However, we
are not finished. I expect that we will continue to move forward
aggressively over the coming months, and will follow the evidence
wherever it leads."
Though it's been more than a year since Enron filed for bankruptcy
in December 2001, experienced prosecutors and defense attorneys
say the investigation has not been unduly slow.
The most complex case to date is the 78-count indictment brought
against former Enron Chief Financial Officer Andrew Fastow in
November. He has been warned by prosecutors to expect a
superseding indictment, meaning that he will face even more
charges, be joined by one or more co-defendants, or both.
Fastow's lawyers have indicated that when the whole story is told, it
will be clear he committed no crime.
Superseding indictments like the one expected in Fastow's case are
relatively common in federal cases. A new defendant added onto
Fastow's indictment would be tried along with Fastow unless defense
attorneys convince U.S. District Judge Kenneth Hoyt, presiding over
Fastow's case, to sever the cases.
Prosecutors save time and money trying more than one person at the
same time. It also pressures the defendants to cooperate because
they may be tainted by one another's actions.
Topping the list of others likely to be charged under the superseding
indictment is former Chief Accounting Officer Rick Causey.
Causey was cited by his job title in an Oct. 1 criminal complaint
against Fastow as having created a secret "Global Galactic"
agreement the government claims guaranteed Fastow that his private
partnership, LJM, would not lose any money in its deals with Enron.
Prosecutors may also be putting pressure on Fastow's wife, Lea. The
grand jury has heard testimony concerning her knowledge and
control of bank accounts related to his indictment. Prosecutors
sometimes threaten to charge a spouse to get a defendant to plead
and cooperate.
Former Enron Treasurer Ben Glisan, who was cited by job title in the
initial Fastow charges, could face charges. Glisan stated in court
documents he has been told he's an investigation "subject," a limbo
status between being a witness and an actual target.
In December, Glisan announced plans to return nearly $1 million in
profits he made from investing in a partnership that is at the heart of
both the guilty plea by ex-Enron executive Michael Kopper and the
Fastow indictment.
The grand jury has also heard from Lay's personal accountant and
his children, as the jury considers the possibility that Lay engaged
in insider trading when he sold millions of dollars in stock last year
as the share price plummeted.
The children were asked about their father's finances, but are not
targets of the investigation, according to sources. Prosecutors may be
closing in on indicting him or, if that's not possible, simply ensuring all bases are covered.
Lay first began daily sales of Enron stock after it hit a peak of more than $90 per share in
August 2000. Through a preprogrammed schedule, he exercised a fixed number of options
and sold the same number of shares every weekday, netting thousands of dollars each time.
He continued on a similar pace as the stock began dropping in February 2001 and
throughout the year.
Investigators are particularly interested in several sales outside the programmed schedule
that netted Lay as much as $70 million. In each of those transactions, Lay sold about $4
million worth of shares back to Enron.
His attorney has explained that those sales were used to pay off loans to various banks that
were secured with Enron stock. When the stock price declined, they said, the banks
demanded payment and Lay was forced to sell the shares.
Prosecutors have also focused on Enron Broadband Services, a division of the company that
traded access to Internet data pipelines and was supposed to provide entertainment
content, such as movies and games. The business unit was the energy company's attempt
at capitalizing on the dot-com hype that drove much of the economy in the late 1990s, but
it never made a profit.
The grand jury has heard months of testimony about how Enron executives may have
overreached in portraying the finances and technological ability of the business during
meetings with analysts in January 2000, January 2001 and February 2001. Those
meetings, one of which promoted a deal with home-entertainment giant Blockbuster,
helped drive up the stock price at a time when insiders made millions selling their own
shares.
Investigators' likely targets are the executives who spoke at the meetings -- from midlevel
managers up to Enron Broadband Services CEO Ken Rice and Chief Financial Officer Kevin
Howard, and Enron CEO Jeff Skilling.
But defense attorneys argue prosecutors could have a tough time making cases based on
the company's enthusiastic predictions about broadband when similar hype was
widespread in the emerging market at the time.
Prosecutors may also be interested in Nancy Temple, the Andersen attorney whose memo
discussing changes to Enron-related documents was key to a jury's guilty verdict against
Andersen last spring. A congressional committee recently recommended charges against
Temple, but there has been no indication that it's a priority to the Enron Task Force.
A number of former Enron and Arthur Andersen employees have been assisting in the
investigations, notably the four men who have pleaded guilty -- Kopper, a Fastow protégé
whose plea bargain led prosecutors to the ex-CFO; Lawrence Lawyer, a former finance
employee who pleaded guilty to filing false tax reports that failed to report to the Internal
Revenue Service $79,000 earned through an off-books Enron partnership; Timothy Belden,
a Portland, Ore.-based former Enron executive who is helping with the California trading
case; and David Duncan, a former Arthur Andersen partner who supervised Enron's audits.
These men have not yet been sentenced. Some of their sentencing dates have been
postponed as the investigation goes forward.
Houston is not the only host city for Enron-related investigations.
The role of banks in Enron's business is being probed by the Securities and Exchange
Commission and federal and state investigators in New York.
The SEC appears to be taking the lead in investigations against Merrill Lynch and other
companies, coordinating its efforts with the Justice Department, according to sources
familiar with the case.
And Belden, Enron's former top energy trader who pleaded guilty to wire fraud in October,
is part of an investigation of energy market manipulation by a federal grand jury in San
Francisco. The entire energy industry is under scrutiny after the wild price fluctuations in
California power in 2000 and 2001. The investigation into market manipulation by energy
traders began to heat up earlier this year following the revelation in May of internal Enron
memos outlining questionable, and possibly illegal, trading strategies.
Federal investigators have said they want to use Belden to get at unnamed higher-ups.
According to sources, Belden's former boss, John Lavorato, the former president and CEO
of Enron Americas, is also cooperating with investigators. Lavorato's cooperation is notable
because of his close connection to Skilling.
The San Francisco investigators have also subpoenaed information from several companies
that traded energy during the California crisis, including Dynegy, AES Corp., Duke Energy,
Reliant Resources and Williams Cos.
The Enron case also stretches across the Atlantic to England.
In June, the Justice Department charged three former British bankers with wire fraud in
an alleged $7.3 million scheme involving a questioned partnership. Kopper, an architect
behind that partnership, outlined much of the case against the bankers in his plea
agreement. That information was also no doubt a key in building the case against Fastow.
The three former employees of National Westminster Bank, Gary Mulgrew, Giles Darby and
David John Bermingham, were indicted in September, but have yet to make a court
appearance. According to court files, arrest warrants for the three have not been executed.
Chronicle reporter Harvey Rice contributed to this story. |
