Thank you for sharing!

Your article was successfully shared with the contacts you provided.
Yes, criminal defense lawyers concede, the amount of detail found in the 35-page complaint filed by the federal Enron Task Force against former Enron Corp. Chief Financial Officer Andrew Fastow astounds them. But those defense lawyers representing other clients possibly implicated in the Enron fiasco aren’t about to express — on the record, at least — what they honestly think of the work of the federal prosecutors investigating the company and its former executives. Why? Because they believe the prosecutors have done such a rock-solid job on an extremely difficult case that they anticipate inevitable and not particularly welcome news will be coming soon for their clients. “They have definitely worked this case, and they have done so intelligently,” says one lawyer at a Dallas firm representing an executive implicated in the Fastow complaint. “But I can’t say that on the record because my client would not really like to see that.” Notably, this defense lawyer believes that every individual implicated by specific name or by indirect reference in the Fastow complaint can expect to cut a deal with the government or otherwise get indicted in the next few months. “If you’re in there, you are going down,” the lawyer alleges. The Fastow complaint, which was unsealed on Oct. 2, alleges Enron’s board of directors was misled by Fastow and the company’s chief executive officer, chief accounting treasurer and others in connection with Fastow’s alleged role as managing partner of LJM1 and LJM2, special-purpose entities the complaint alleges were used to defraud shareholders. The criminal complaint against Fastow charges him with mail and wire fraud, money laundering, conspiracy and aiding and abetting, and alleges he defrauded shareholders and reaped millions in ill-gotten gains in an alleged scheme to inflate the Houston energy company’s profits. Fastow is out of jail on a $5 million bond. One of his defense attorneys, John Keker, a partner in Keker & Van Nest in San Francisco, said in a statement he read to reporters after Fastow appeared in court that Fastow “never believed he was committing any crime” and says others have “outright lied” about Fastow to discredit him. But four other criminal defense lawyers who are not directly involved in the criminal defense work related to Enron but who have followed the developments closely agree that the government’s handiwork so far provides a clear and surprisingly detailed roadmap of how the prosecutors will proceed. The defense lawyers, some of them former prosecutors, also suggest that the Enron Task Force has conducted its investigation in a manner that ultimately will prove more effective than the work of other prosecution teams nationwide who seemingly are working faster than the Enron team. For instance, the New York district attorney’s office, in its investigation of former Tyco International Ltd. executives, is able to tout indictments against the former chief executive officer, the chief financial officer and the general counsel. Federal prosecutors in the Southern District of New York who are investigating WorldCom chieftains already have secured guilty pleas from four accounting executives. But defense lawyers in Texas and elsewhere say the facts of the WorldCom and Tyco cases differ markedly in their complexity from those in the Enron investigation. Daniel Hedges, a former U.S. Attorney for the Southern District of Texas who represents Enron claimants in the company’s bankruptcy proceedings, says, “Enron is much more complex, involving many more levels. The prosecutors had to be brought up to speed on a number of kinds of transactions.” Philip Hilder, the lawyer for Enron employee Sherron Watkins, who is credited with blowing the first whistle at the Houston energy company more than a year ago, agrees that the other corporate fraud cases nationwide have been more straightforward. Despite the complexity of Enron, Hilder, of Hilder & Associates of Houston, believes the government has methodically and deliberately pursued its targets. Hilder notes how the prosecutors first filed charges against three bankers in National Westminster Bank PLC — (commonly called NatWest) now known as the Royal Bank of Scotland — in September, then produced the plea agreement of former Enron executive Michael Kopper and now have filed a criminal complaint against Fastow. “Each time the circle and the picture seems to get wider,” Hilder says. “I think they are being very smart in taking the building-block approach, because it’s so difficult and so complicated.” In August, Kopper, a former Enron managing director, pleaded guilty to two counts of conspiracy to commit wire fraud and money laundering and agreed, as part of the plea, to forfeit $12 million and testify for the government. In early October, Department of Justice officials announced that they were seeking the extradition from Britain of three bankers, formerly of NatWest, who had been indicted earlier on wire-fraud charges related to Enron. The former NatWest bankers, the prosecutors alleged in the Fastow complaint, helped conceal from Enron and their own institution the true structure of transactions with some of the off-the-book companies in which Fastow and others had a financial interest. Tom Mills, a founding partner of Dallas’ Mills & Williams, agrees that the prosecutors are proceeding strategically and effectively. Mills warns that the Enron prosecution shows how aggressively the government is willing to prosecute mail fraud and Securities and Exchange Commission disclosure statutes. About the Enron prosecution’s work, Mills says, “This is a massive document case. It’s amazing what they’ve done. By the Fastow complaint being so specific, the prosecutors are showing people that they know more than is in the complaint. The general perception is that the Houston prosecutors are doing a bang-up job, and there is no heel-dragging going on.” Actually, prosecutors from Houston aren’t on the case after the U.S. Attorney for the Southern District of Texas, Michael Shelby, recused his entire office because so many of the prosecutors had friends or family members who worked at Enron. The Washington, D.C.-based Enron Task Force is led by Leslie Caldwell, an Assistant U.S. Attorney from San Francisco, and includes a number of Assistant U.S. Attorneys who cut their teeth on organized crime prosecutions. Hedges says the complaint against Fastow stands out as significant, particularly because it allows for a preview of the case the task force is likely to make against a former Enron CEO, either Jeffrey Skilling or Kenneth Lay. The complaint, Hedges notes, does not identify whether the CEO referred to in specific instances was Lay or Skilling. Nor does it give, in all instances, a specific date to help identify whether Lay or Skilling would have been the CEO at that time. Hedges believes the prosecutors intentionally introduced that ambiguity to “maintain their flexibility.” Hedges also contends that Richard Causey, the former chief accounting officer for Enron who was referred to by position and not name in the complaint, should interpret the mention of his role and knowledge in the government’s most recent document as a clear warning. “If I were in his position,” says Hedges, “I certainly would take it that way.” In the Fastow complaint, the prosecutors allege that the Enron CAO (Causey at the time) and others devised a scheme to manufacture a $41 million payment to LJM. They also allege the Enron CAO entered into a deal, referred to as the “Global Galactic” agreement with Fastow, which allegedly 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. That alleged agreement was particularly troubling, the complaint states, because Causey, as well as an unnamed Enron CEO and Enron treasurer, allegedly gave false representations to the Enron board of directors about the LJM enterprises and their review of it and Fastow’s relationship with it to ensure that the company wasn’t getting a raw deal. Causey’s lawyer, Reid Weingarten, declines to comment about the allegations in the Fastow complaint. “I’m holding my fire,” says Weingarten, a partner in Steptoe & Johnson in Washington, D.C. Houston lawyer Michael Ramsey, Lay’s defense attorney, says he does not believe the complaint points the finger at his client. He says Lay did not mislead Enron’s board, and he says that while the prosecutors appear to be pointing at Causey, he’s not concerned that the former chief accounting officer would have testimony damaging to his client. “I don’t think Mr. Causey would have anything to say that would hurt Mr. Lay,” Ramsey, a solo practitioner, says. Skilling’s lawyer, Bruce Hiler of O’Melveny & Myers in Washington, D.C., says he cannot comment publicly. For his part, Andrew Weissmann, an Assistant U.S. Attorney from New York who represented the Enron Task Force at Fastow’s court appearance, declines to elaborate on the allegations in the Fastow complaint. Weissmann disputes claims by defense lawyers that they have been given short shrift by the government team when they asked, shortly before the Fastow complaint was filed, to come in with their clients who were likely to be implicated in it. One defense lawyer, who wishes to remain anonymous, says, “We were told there was no time to hear our side.” That would be routine procedure in white-collar cases, Hedges says. But Weissmann contends his team followed that practice of talking with lawyers representing possible targets of indictment. “As a general rule, people were allowed to come in and talk,” he says. However, one defense lawyer familiar with the work of the Enron Task Force says Merrill Lynch & Co. bankers did not get to talk to prosecutors directly before the Fastow complaint was filed. The Fastow complaint alleges that Merrill overcame internal objections in late 1999 and invested $7 million in three barges moored off the Nigerian coast to generate electricity for the government. The government prosecutors allege in the Fastow complaint that Merrill received an “express, but deliberately, unwritten commitment” from Fastow that Enron would buy back the investment in six months with a fixed rate of return. Merrill received some $40 million in fees in 1999 from Enron, the prosecutors alleged in the Fastow complaint. Because Enron was a big fee-generating client, Merrill had “a strong incentive to accommodate Enron,” the complaint alleges. Jim Brown, the Merrill official, wrote that the investment bank might suffer “reputational risk i.e. aid/abet Enron income stmt manipulation,” according to notes released at Senate hearings on the transaction in July. Bill Halldin, a spokesman for Merrill, says, “Based on what we know, we believe our employees acted appropriately with Enron.” Halldin notes that the investment bank has cooperated fully with government investigators, providing documentation about the specific transaction referred to in the Fastow complaint. In September, Merrill announced that it had fired two top executives for not cooperating with the Enron Task Force. Restating its policy requiring employees to cooperate fully with regulatory and law enforcement investigations, Merrill dismissed a vice chairman and former investment banking head, and another executive, who headed the energy and power group. Halldin also notes that Merrill stated in an SEC filing, submitted in August, that it had been informed by the government that it was not a target of a criminal investigation. Halldin says Merrill faced real risk with the Enron transaction — possibly the loss of $7 million. “We were focused on that fact,” Halldin says.

This content has been archived. It is available through our partners, LexisNexis® and Bloomberg Law.

To view this content, please continue to their sites.

Not a Lexis Advance® Subscriber?
Subscribe Now

Not a Bloomberg Law Subscriber?
Subscribe Now

Why am I seeing this?

LexisNexis® and Bloomberg Law are third party online distributors of the broad collection of current and archived versions of ALM's legal news publications. LexisNexis® and Bloomberg Law customers are able to access and use ALM's content, including content from the National Law Journal, The American Lawyer, Legaltech News, The New York Law Journal, and Corporate Counsel, as well as other sources of legal information.

For questions call 1-877-256-2472 or contact us at [email protected]


ALM Legal Publication Newsletters

Sign Up Today and Never Miss Another Story.

As part of your digital membership, you can sign up for an unlimited number of a wide range of complimentary newsletters. Visit your My Account page to make your selections. Get the timely legal news and critical analysis you cannot afford to miss. Tailored just for you. In your inbox. Every day.

Copyright © 2021 ALM Media Properties, LLC. All Rights Reserved.