Labels: Andy Fastow, Enron, Louisiana, Michael Kopper

Labels: Andy Fastow, Comverse, Kobi Alexander

Labels: Andy Fastow, Enron

Kenneth Lay knew of Enron's troubles, Fastow says

By Alexei Barrionuevo and
Vikas Bajaj The New York Times
Via The International Herald Tribune
THURSDAY, MARCH 9, 2006

...Enron filed for bankruptcy in late 2001, setting off numerous investigations, including the four-year federal investigation that culminated in the trial of Lay and Jeffrey Skilling, Enron's former chief executive, now in its sixth week. The men are accused of fraud and conspiracy...

..Andrew Fastow [Enron's] finance executive, said he briefed Lay, who was then chairman, about the "serious problems" at the company in the summer and autumn of 2001, and the two jointly met with investment bankers to explore a restructuring, sale or merger of Enron...Fastow, who created the numerous off-balance-sheet partnerships designed to hide Enron's liabilities and bolster its reported earnings, is one of the government's star witnesses in the trial. On Tuesday, he strongly pointed the finger at Skilling, saying that he had approved of and directed Fastow's use of the partnerships to hide troubled projects and investments from investors.

Questioned for a second day by the prosecutor, John Hueston, Fastow detailed on Wednesday a series of meetings between himself, Lay and other executives in the late summer and autumn of 2001 after Skilling had left the company citing personal reasons. "I told Mr. Lay we had $5-to-$7 billion of embedded problems," Fastow said about a meeting a few days after Skilling left in August 2001. "Even if we are smart enough and don't make a mistake for five years, it would take us that long to work ourselves out of our problems."

Fastow said that he recommended hiring Goldman Sachs to help Enron pursue a restructuring, and that he and Lay met with bankers from the New York- based investment firm a few weeks later. Fastow said he recommended Goldman because the firm was not lending Enron money at the time, unlike many other Wall Street firms, which might have cut off their loans to Enron if they realized how severe its problems were.

Prosecutors displayed notes that Fastow made at the time listing the growing financial problems at the company's energy trading, broadband and international divisions. Fastow has pleaded guilty to fraud charges and agreed to a 10-year sentence in a plea deal with the government. By late 2001, reporters and Wall Street analysts had started raising pointed questions about the numerous partnerships that Fastow had created and profited personally from.

But in interviews, meetings with analysts and messages to employees, Lay deflected such questions and said the company was in fine health. "The company is fundamentally sound," Lay told employees in September 2001. "The balance sheet is strong." Fastow, however, testified that the company was scrambling to meet its earnings projections for the third quarter and had a shortfall of $826 million. The company covered a part of that gap by using accounting reserves, Fastow said...

Labels: Andy Fastow, Enron

Enron trial no Lay-up - With all we know about Enron, convicting Lay and Skilling may seem like a sure win. It's not.

By Roger Parloff, FORTUNE senior writer
January 11, 2006: 12:35 PM EST
FORTUNE

Suppose as an epilogue to "The Emperor's New Clothes," the humiliated potentate had been brought up on charges of public lewdness. Putting aside sovereign-immunity issues, what should the jury's verdict be?
Well, the emperor should obviously be acquitted because he never intended to go naked in public; he really believed he was wearing something, even if he couldn't see exactly what it was.

To commit most crimes, one has to intend to do something wrong. Accordingly, truly deluding oneself -- gullibly trusting a deceitful subordinate (in the emperor's case, the tailor), relying on yes-men advisors, resting undue confidence on one's own innovative brilliance -- is a defense. An individual cannot be a criminal unless he has a certain baseline level of self-knowledge. Without that, psychiatrists may have labels for him, but the penal code does not.

At their criminal trial Jeffrey Skilling and Ken Lay will each advance defenses closely analogous to the naked emperor's: They were tragically misled, their attorneys will argue, by a small group of deceitful subordinates (chief financial officer Andrew Fastow and his minions); their actions were blessed at every turn by seemingly illustrious advisors (sycophantic accountants at Arthur Andersen, blindered lawyers at Vinson & Elkins and a passive board of directors); and perhaps, too, they got a little carried away by their own presumed innovative brilliance during the irrational exuberance of the late 1990s bubble economy.

In this context, their attorneys may suggest, the defendants believed they had discovered a legitimate business model that relied heavily upon the use of extremely complex, structured finance transactions that, in hindsight, may have proved unsound...

Labels: Andy Fastow, Enron

Status of high-profile corporate scandals

November 23, 2005
By The Associated Press

A look at some of the high-profile corporate scandals of recent years and the status of legal action in each.

ADELPHIA COMMUNICATIONS CORP. -- Michael Rigas, a son of the founder of Adelphia Communications Corp., pleaded guilty on Wednesday to a charge of making a false entry in a financial record, eliminating the need for his retrial on securities fraud and bank fraud charges in a scandal that forced the cable giant into bankruptcy. John Rigas and his son Timothy were convicted in federal court last year of conspiracy, bank fraud and securities fraud. On June 20, John Rigas was sentenced to 15 years in prison, and Timothy Rigas to 20 years. They are free pending appeal. A fourth executive, Michael Mulcahey, was found not guilty of conspiracy and securities fraud. Last month, John and Timothy were indicted in Philadelphia on charges they and other family members didn't pay $300 million in taxes.

WORLDCOM INC. -- Bernard Ebbers, who as CEO of WorldCom oversaw the largest corporate fraud in U.S. history, was sentenced on July 13 to 25 years in prison. The sentence was handed down in Manhattan three years after WorldCom collapsed in an $11 billion accounting fraud, wiping out billions of investor dollars. A judge ruled in September that Ebbers can stay out of prison while he appeals his conviction.

HEALTHSOUTH CORP. -- Former CEO Richard Scrushy was acquitted on June 28 on all 36 counts of conspiracy, false reporting, fraud and money laundering in an alleged $2.7 billion earnings overstatement at the rehabilitation and medical services chain over seven years beginning in 1996. He blamed the fraud on 15 former HealthSouth executives who pleaded guilty. Hannibal "Sonny" Crumpler, a former HealthSouth executive, the second person to stand trial in the fraud was convicted last Friday of conspiracy and lying to auditors for his role in the fraud.

TYCO INTERNATIONAL LTD. -- Former Chief Executive L. Dennis Kozlowski and Chief Financial Officer Mark H. Swartz were convicted June 17 on 22 of 23 counts of grand larceny, conspiracy, securities fraud and falsifying business records. Prosecutors accused the two of conspiring to defraud Tyco of millions of dollars to fund extravagant lifestyles. The two were sentenced Sept 19 to eight and one-third to 25 years in prison. A judge refused to release Kozlowski and Swartz on bail while they are appeal their convictions.

ENRON CORP. -- Enron founder Kenneth Lay, former CEO Jeffrey Skilling and former top accountant Richard Causey are scheduled to go to trial in January on federal fraud and conspiracy charges. Former CFO Andrew Fastow pleaded guilty in January 2004 to two counts of conspiracy, admitting to orchestrating schemes to hide the company's debt and inflate profits while pocketing millions of dollars. He agreed to serve the maximum 10-year sentence, which will begin in July 2006, after he testifies against his former bosses.

Fastow's wife, Lea Fastow, completed a yearlong sentence in July on a misdemeanor tax charge for failing to report her husband's kickbacks. Former Enron treasurer Ben Glisan Jr. is serving a five-year sentence for his role in the scandal. And two former Merrill Lynch & Co. executives were sentenced to short prison terms for their roles in a bogus Enron sale of power barges.

CREDIT SUISSE FIRST BOSTON -- The company's former investment banking star, Frank Quattrone, was convicted in May 2004 on federal charges of obstruction of justice, after his first trial ended in a hung jury. Quattrone, who made a fortune taking Internet companies public during the dot-com stock boom, was sentenced to 18 months in prison. He is free on bail, appealing the conviction.

MARTHA STEWART: The founder of the homemaking empire was released March 4 after serving five months in prison, and finished serving an additional five months and three weeks of home confinement at the end of August. She was convicted in federal court last year of conspiracy, obstruction of justice and making false statements related to a personal sale of ImClone Systems Inc. stock. Her former broker at Merrill Lynch, Peter Bacanovic, served a five-month sentence and was released June 16. He still faces five months of home confinement. Stewart's conviction was not related to the company she founded, Martha Stewart Living Omnimedia Inc.

CENDANT CORP.: Former Cendant Corp. Vice Chairmen E. Kirk Shelton was convicted in January of conspiracy and securities, wire and mail fraud. He was sentenced on August 3 to 10 years in prison and ordered to pay full restitution for his role in an accounting scandal that cost investors and the company more than $3 billion. Shelton was ordered to pay $3.27 billion to Cendant including an initial "lump sum" payment of $15 million last month. Shelton delivered cash, company stock and company-funded insurance policies, a combination that Cendant said is at least $2.4 million short and fluctuates daily. Shelton stood trial with former Cendant Chairman Walter Forbes, whose case ended in a mistrial and will be retried. Four other former executives have already pleaded guilty.

Labels: 2006, Andy Fastow, Cendant, Dennis Kozlowski, Enron, Health South, money laundering, Tyco

JP Morgan pays $1bn to settle Enron claim

David Teather in New York
Wednesday August 17, 2005
The Guardian

JP Morgan Chase agreed yesterday to pay $1bn (£550m) to settle claims brought against it by Enron, bringing the total cost of the Wall Street bank's brush with the notorious energy firm to $3.2bn. The latest settlement will put further pressure on those banks that Enron has an outstanding claim against, including Barclays.

Enron filed suit against 10 banks, accusing them of helping the energy company's former management to commit fraud. Enron filed for bankruptcy in December 2001 amid allegations that it routinely hid debts and inflated revenues and earnings through a series of complex off-balance sheet deals. Almost four years later, the scandal continues to cast a long shadow over both the finances and the reputation of Wall Street.

JP Morgan agreed to pay $350m in cash and to forgo certain claims in Enron's bankruptcy proceedings, bringing the settlement to about $1bn. "We have put behind us another significant piece of our Enron exposure," said the bank's chief executive, William Harrison. The firm agreed in June to pay $2.2bn to settle a class-action lawsuit filed by former investors in Enron.

The Toronto Dominion Bank also announced a settlement with Enron yesterday and said that it would pay $70m to resolve the allegations that it helped the company commit fraud. Enron has now recovered about $735m in cash in what the company calls its "mega-claims" litigation. In earlier settlements, Royal Bank of Scotland agreed to pay $41.8m; Canadian Imperial Bank of Commerce will pay $250m, and Royal Bank of Canada will pay $25m.

"These are tremendous results for creditors and they will certainly add to their distributions," said John Ray, Enron's board chairman. He said talks were continuing with the remaining five banks that had not settled and that the latest agreements "give us momentum". The company emerged from bankruptcy late last year and now exists to liquidate assets and pay debts. Before its collapse, Enron was once the seventh-largest company in the United States.

The Enron scandal rewrote corporate law in the US and the government has worked aggressively to pursue its former executives. Convictions have been secured against a handful of former Enron employees with the biggest catch yet being the former chief financial officer Andrew Fastow, who is facing 10 years in prison after pleading guilty to fraud. The most eagerly anticipated trial - of the former chief executive Jeffrey Skilling and the former chairman Ken Lay, who was once a friend of President George Bush - is scheduled to begin early next year.

The shareholder lawsuits against Enron's former advisers have accused the banks of helping the energy firm to mask its true financial state and to continue selling equities and bonds to investors even as it headed towards bankruptcy. In August, the Canadian Imperial Bank of Commerce agreed to pay investors $2.4bn, bringing the total amount recovered from banks on shareholders' behalf to $7bn. In the investor lawsuit, Citigroup has paid $2bn.

A number of banks holding out against the suit brought by Enron - Barclays, Credit Suisse First Boston, Merrill Lynch and Deutsche Bank - have also yet to settle the class-action suit that was brought by shareholders. The other firm that has yet to settle the Enron suit is Citigroup, while Royal Bank of Scotland is among the banks that have not yet settled the shareholder lawsuit. William Lerach, the lawyer representing the former Enron shareholders, has warned that the longer the banks hold out against reaching a settlement, the more they will be forced to pay eventually.

Labels: Andy Fastow, Enron

TYCO INTERNATIONAL LTD. -- Former Chief Executive L. Dennis Kozlowski and Chief Financial Officer Mark H. Swartz were convicted Friday on 22 of 23 counts of grand larceny, conspiracy, securities fraud and falsifying business records. Prosecutors accused the two of conspiring to defraud Tyco of millions of dollars to fund extravagant lifestyles. The two executives each face up to 30 years in prison.

HEALTHSOUTH CORP. -- Former CEO Richard Scrushy could spend the rest of his life in prison if convicted on all 36 counts of conspiracy, false reporting, fraud and money laundering for allegedly orchestrating a $2.7 billion earnings overstatement at the rehabilitation and medical services chain for seven years beginning in 1996. A Birmingham, Ala., federal jury has been deliberating in the case since May 19.

WORLDCOM INC. -- Bernard Ebbers, former chief of the one-time telecom giant, was found guilty of fraud, conspiracy and making false regulatory filings in WorldCom's $11 billion accounting scandal. The case against him was largely based on the testimony of former CFO Scott Sullivan, who agreed to testify against his boss as part of a plea deal. Ebbers is due to be sentenced next month and faces up to 85 years in prison.

ENRON CORP. -- Enron founder Kenneth Lay, former CEO Jeffrey Skilling and former top accountant Richard Causey are scheduled to go to trial in January on federal fraud and conspiracy charges. Former CFO Andrew Fastow pleaded guilty in January 2004 to two counts of conspiracy, admitting to orchestrating schemes to hide the company's debt and inflate profits while pocketing millions of dollars. He agreed to serve the maximum 10-year sentence, which will begin in July 2006, after he testifies against his former bosses.

In addition, Fastow's wife will complete a year-long sentence next month on a misdemeanor tax charge for failing to report her husband's kickbacks. Former Enron treasurer Ben Glisan Jr. is serving a five-year sentence for his role in the scandal. And two former Merrill Lynch & Co. executives were sentenced to short prison terms for their roles in a bogus Enron sale of power barges.

ADELPHIA COMMUNICATIONS CORP. -- Founder John Rigas and his son Timothy were convicted in federal court last year of conspiracy, bank fraud and securities fraud. The two are to be sentenced Monday. Another Rigas son, Michael, was acquitted of conspiracy charges before the case ended in a mistrial with jurors deadlocked on 17 counts against him. A fourth executive, Michael Mulcahey, was found not guilty of conspiracy and securities fraud.

CREDIT SUISSE FIRST BOSTON -- The company's former investment banking star, Frank Quattrone, was convicted in May 2004 on federal charges of obstruction of justice, after his first trial ended in a hung jury. Quattrone, who made a fortune taking Internet companies public during the dot-com stock boom, was sentenced to 18 months in prison. He is free on bail and appealing the conviction.

MARTHA STEWART: The founder of the homemaking empire was released March 4 after serving five months in prison, and is serving an additional five months confined to her home. She was convicted in federal court last year of conspiracy, obstruction of justice and making false statements related to a personal sale of ImClone Systems Inc. stock. Her former broker at Merrill Lynch, Peter Bacanovic, began serving a five-month sentence in January, and still faces five months of home confinement. Stewart's conviction was not related to the company she founded, Martha Stewart Living Omnimedia Inc.

Labels: 2006, Andy Fastow, Dennis Kozlowski, Enron, Health South, money laundering, Tyco