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Andrew S. Fastow, Enron Corp.’s former chief financial officer, was charged on Wednesday in Houston with defrauding shareholders and reaping millions in ill-gotten gains in an alleged scheme to inflate the Houston energy company’s profits. Fastow faces charges of wire and mail fraud, money laundering, conspiracy and aiding and abetting in a criminal complaint unsealed on Wednesday. If convicted on the charges, Fastow could face a maximum of 140 years in prison. The Securities and Exchange Commission also filed a civil suit against Fastow on Wednesday, alleging his actions violated securities laws. The SEC seeks unspecified civil penalties and disgorgement of his ill-gotten gains. Fastow, 40, surrendered early on Wednesday morning at the Federal Bureau of Investigation office in Houston, and he left about 30 minutes later in handcuffs to be transported to the federal courthouse in downtown Houston. He made his initial court appearance late Wednesday morning before U.S. Magistrate Judge Marcia Crone and was released on a $5 million bond that afternoon. Terms of the bond require him to turn over the deeds to five properties he owns. The government also froze $3 million in a brokerage account as a condition of the bond agreement and froze another $11 million in assets. He was accompanied on Wednesday by his attorneys, John Keker, a partner in Keker & Van Nest of San Francisco, and David Gerger, of Law Offices of Foreman, DeGeurin, Nugent & Gerger in Houston. Wearing a gray suit and a red tie, Fastow was somber in Crone’s packed courtroom, where he sat for 30 minutes waiting for the magistrate. Fastow is the second Enron official to come under federal charges in connection with government investigations into the collapse of Enron, which filed a Chapter 11 in December 2001 after a massive restatement and a swift decline in its stock price. In August, former Enron managing director Michael Kopper pleaded guilty to two counts of conspiracy to commit wire fraud and money laundering and agreed, as part of a plea agreement, to forfeit $12 million. The charges against Fastow were not unexpected because his actions have been under investigation by federal agencies for months and because Kopper, who has agreed to cooperate with government investigators, implicated him in statements in court. In a statement he read to reporters following Fastow’s court appearance, Keker blamed others for Enron’s problems. “For the last year, Andy Fastow’s former colleagues have denied their own responsibilities, whispered false rumors, and often outright lied to discredit him. We will confront the gossip and lies in a courtroom — not in the press,” Keker said. In response, Assistant U.S. Attorney Andrew Weissmann says, “He will be able to make his case at trial.” Weissmann says Fastow faces a maximum of 140 years in prison on the charges. Fastow agreed to turn over the deeds to his house in the fashionable Southampton area of Houston, a house that’s under construction in pricey River Oaks, and houses he owns in Galveston and in Vermont. He also turned over the deed to a house in Southampton where his parents live. Keker told Crone he’s convinced Fastow has no offshore assets. “I represent to the court there are no offshore assets. I haven’t been to Switzerland, but I’ve investigated to the best of my abilities,” Keker said. The 35-page criminal complaint against Fastow, United States of America v. Andrew S. Fastow, No. 02-889-M, details the former CFO’s role in many of the now-familiar special-purpose entities that Enron allegedly used to inflate its profits, such as Chewco, RADR, JEDI and the LJM entities. The complaint alleges Fastow, Kopper and others devised a scheme to enrich themselves while enabling Enron to maintain secret control over assets it sold to allegedly independent SPEs. The complaint, prepared by a special agent of the FBI, alleges that Enron’s board of directors relied on false representations when giving its approval to Fastow’s role as managing partner of two special-purpose entities, LJM1 and LJM2. The complaint alleges Enron did transactions with the LJM entities from July 1999 through October 2001 that defrauded Enron, its shareholders, the SEC and others. But the complaint alleges that Fastow, Enron’s chief executive officer, its chief accounting officer, its treasurer and others made false representations to the board about Fastow’s role at LJM. It doesn’t further identify the individuals. It also alleges that Fastow and Enron’s CAO had an undisclosed agreement, called the Global Galactic agreement, that said LJM would not lose money in dealings with Enron and any Enron-LJM transaction that resulted in a loss to LJM would be made up later. Reid Weingarten, a partner in Steptoe & Johnson in Washington, D.C., who represents former Enron CAO Rick Causey, did not return a telephone message by deadline on Wednesday. Houston lawyer David Berg, a partner in Berg & Androphy who does white-collar crime defense, says the government is being clever by detailing, in the complaint, alleged actions of other individuals at Enron. It signals the scope of the information they have, he says. “They are providing Mr. Fastow with a window to become a government witness. This is actually quite wise by the government,” Berg says. “If you indict everybody all at once, they circle the wagons. Actually this is quite clever by the government. They are picking them off one by one.” Weissmann would not say why the government chose to go the criminal complaint route, but he alleges Fastow is not cooperating with the government. The government has 30 days after a criminal complaint to get an indictment from a grand jury. But David Finn, a former Assistant U.S. Attorney in Dallas and a partner in Milner & Finn who is not involved in the litigation, says he sees little tactical advantage to a criminal complaint unless prosecutors are fearful Fastow would flee the country. Weissmann says they took possession of Fastow’s passport and his wife’s passport a month ago. Giving up the passports also is a condition of Fastow’s bond. He also cannot travel except within Texas and in California. Crone pointed out during the hearing that employment is usually a condition of bond, but Fastow’s attorney, Keker, told Crone he expects Fastow would have difficulty finding employment until the case is resolved. “We agree it would be difficult for Mr. Fastow to find employment,” Weissmann said. The complaint alleges Kopper aided Fastow in receiving kickbacks from Chewco, an entity the complaint alleges Fastow asked Kopper to manage because he could not do so without requiring disclosure by Enron. “Fastow’s inability to serve in a formal role at Chewco, however, posed no impediment to his greed: He demanded a share of Chewco’s profits, in violation of his duty to provide honest services to Enron and its shareholders,” the complaint said. The complaint was based in part on statements from nine confidential sources, including a former Enron and LJM employee, a former Enron executive, two former Enron employees who worked on a Nigerian barge transaction detailed in the complaint, an employee of a “leading financial institution” who was involved in the barge transaction and an employee of a financial institution involved in the same transaction, and two former Enron employees who worked on a transaction involving a project in Brazil. The informants also include an investor for Fastow in an off-the-books partnership and two former Enron employees who also were investors in at least one partnership. The SEC complaint against Fastow is similar to one brought against Kopper in August, but it did not detail specific assets and seek to freeze them. Luis Mejia, assistant chief litigation counsel for the SEC in Washington, D.C., says the SEC will go after any funds that are left. “We’re seeking everything, every nickel, every dime, every penny Mr. Fastow made from violating the nation’s securities laws,” Mejia says.

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