And as the Enron/Democratic dominoes start falling, the Editor at the NY Times responsible for all things Enron, Allen Myerson, falls from his NY Times office window to his death the next day...
Posted on 08/21/2002 8:11:52 PM PDT by Pokey78
HOUSTON, Aug. 21 — A former Enron finance executive told a federal judge here today that he paid large kickbacks to the company's former chief financial officer, Andrew S. Fastow, out of money he received for managing a partnership that was used to help the company hide debt and increase profits.
The admission by the executive, Michael J. Kopper, came as he pleaded guilty to charges of conspiracy to commit wire fraud and money laundering, crimes that arose from his dealings with partnerships that ultimately led to Enron's financial collapse. Mr. Kopper also settled a civil case brought by the Securities and Exchange Commission, and agreed to turn over to the government $12 million that was obtained through criminal activity.
Mr. Kopper's plea bargain, which requires his cooperation with the investigation into Enron's collapse, was considered by prosecutors to be a big step forward in the inquiry. People involved in the case said Mr. Kopper had provided details of wrongdoing that exceeded his admissions in court, including important leads related to senior executives other than Mr. Fastow.
The government acted rapidly on its recently obtained evidence, filing a request seeking the forfeiture of about $23 million in assets held by Mr. Fastow and some of his associates, people involved in the case said. That request has not yet been ruled on, but some details of the assets involved were described in the criminal charges, including millions of dollars held in bank accounts by Mr. Fastow, members of his family and former Enron executives.
The deal with Mr. Kopper also provided a strong signal that prosecutors in the Enron investigation - who have been criticized by some member of Congress for moving too slowly — have instead been methodically building a case against former company officials by using a building-block strategy of turning lower-level executives against their superiors. [News analysis, Page C1.]
"This is a substantial breakthrough in our investigation," said Leslie Caldwell, the head of the Justice Department's Enron task force, adding that Mr. Kopper's knowledge "will become our knowledge."
But the deal was a transformation that played out at a deeply personal level as well, as Mr. Kopper publicly accepted that his future depended on abandoning his loyalty to his friend Mr. Fastow.
In calm and measured tones in the courtroom, Mr. Kopper softly described how he and his friend had worked assiduously over many years to use a series of off-the-books partnerships to defraud Enron of millions of dollars.
Indeed, the statements by Mr. Kopper and information contained in the court documents seemed to upend the oft-repeated argument that the partnerships established by Enron were simply a valid strategy that had gone horribly awry. Rather, with Mr. Kopper's tales of kickbacks and secret deals, legal experts said, the entire strategy has lost its veneer of a business idea and taken on the air of little more than a financial fraud in which only a small number of insiders knew the truth.
In effect, as described by the government, the partnership strategy at Enron was a series of lies within lies. Executives used it to hide the true state of the company's finances and holdings from Wall Street and from regulators, and then used it again to funnel vast amounts of money to themselves without the knowledge of shareholders. Based on Mr. Kopper's admissions, the managers of the partnerships — which had to meet certain requirements of independence to be used as a valid business strategy — were so closely linked in the lucrative scheme that the entities they ran were entwined with one another and with the company they were supposed to benefit.
"The conspirators created an array of companies designed to disguise Enron's vulnerability to risk and losses, and to benefit the conspirators at the expense of Enron's shareholders," the deputy attorney general, Larry D. Thompson, said in a news conference at the Justice Department.
Outside the courtroom, David Howard, a lawyer for Mr. Kopper, read a statement on his behalf as his client stood silently beside him. "Michael has admitted that he misused his position at Enron to enrich himself and others," Mr. Howard said. "He apologizes to all whose lives have been affected by what he did."
Gordon Andrew, a spokesman for Mr. Fastow, declined comment. Mr. Kopper, who is 37, was released pending sentencing on a $5 million bond. He faces a maximum sentence of 15 years on the two charges.
The two felonies to which Mr. Kopper pleaded guilty arose from transactions involving three Enron partnerships, known as RADR, Chewco and Southampton. The last two are generally well known; RADR, or risk adjusted discount rate, has only been raised tangentially in the past and has never been mentioned as possibly involving criminal violations.
RADR was used, according to the charges against Mr. Kopper, to allow Enron to sidestep the requirements of state and federal energy regulations. In early 1997, Enron was about to lose certain government benefits it received for owning wind farms because of its purchase of a public utility. Rather than give up the benefit, according to the criminal charges, several Enron executives including Mr. Kopper and Mr. Fastow devised a method of using partnerships known as RADR "to enrich themselves and enable Enron to retain secret control over the California wind farms."
For the partnership to be used properly, Enron would have to secure independent investors to buy at least 3 percent of RADR. But instead, according to the criminal charges, Mr. Kopper and Mr. Fastow turned to personal friends, including Mr. Kopper's domestic partner and a friend of Mr. Fastow's wife, Lea.
According to the charges, Mr. Fastow then advanced the money for the RADR investment to Mr. Kopper, who in turn provided it to the friends that had been lined up. The friends would then funnel distributions from the partnership back to Mr. Fastow through Mr. Kopper to repay the unsecured loan. In other words, there were no true investors among these participants other than Mr. Fastow.
Between 1997 and 2000, the partnership generated $2.7 million in distributions, and an additional gain of $1.8 million when Enron repurchased RADR. Two of the friends were then instructed to transfer portions of their proceeds to Enron insiders — including Mr. Fastow and Mr. Kopper and their family members.
Another partnership involved in the illegal actions was Chewco, which was established in 1997 to buy an outside investor's stake in another entity, Jedi. Mr. Kopper was named as the manager of Chewco. But again, the partnership did not meet the requirements for outside equity investors because the vast majority of the outside money came from loans guaranteed by Enron.
Over three years, the charges say, Mr. Kopper received $1.5 million in management fees from Chewco, portions of which he kicked back to Mr. Fastow. Those payments were made by check to members of Mr. Fastow's family, the charges say. At one point, in 1998, Mr. Fastow arranged for Enron to pay Chewco $400,000 as a "nuisance fee" to amend a partnership agreement; more than $67,000 of that money was kicked back to Mr. Fastow, the charges say.
The last transaction involved the Southampton partnership. The scheme was complex, but effectively involved having Enron pay $30 million for an asset, and then turning over only $11 million to the asset's original owner. Mr. Fastow, Mr. Kopper and other participants then divided the remaining $19 million among themselves, the charges say.
The Southampton transactions, as described in the charges, involved multiple layers of deceit in which both Enron and a bank, National Westminster, were lied to by their employees. The bank, which held an interest in an asset called Swap Sub, was persuaded by three of its bankers to sell it for $1 million to Southampton, which Mr. Kopper controlled. The bankers, who were secretly working with Mr. Kopper and Mr. Fastow, held an indirect ownership stake in Southampton.
Within weeks, according to the charges, Mr. Fastow and Mr. Kopper persuaded Enron to pay $30 million to buy out Swap Sub. Of that, $10 million went to another bank that invested in the deal, and $20 million went to Southampton.
And as the Enron/Democratic dominoes start falling, the Editor at the NY Times responsible for all things Enron, Allen Myerson, falls from his NY Times office window to his death the next day...
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