VideoFederal prosecutors probing Enron Corp.'s collapse finally reeled in a big fish.
After weeks of media speculation, former Enron chief financial officer Andrew Fastow was indicted Thursday on 78 counts. The long list of charges includes fraud, money laundering, and conspiracy as part of an alleged scheme to artificially boost earnings and enrich himself.
The charges, however, added little to the criminal complaint filed earlier this month against Fastow.
The indictment, though, included the additional charge that he obstructed justice by trying to persuade one of his closest aides, Michael Kopper, to destroy computer records, according to published accounts.
Kopper pleaded guilty to two counts of conspiracy back in August.
"These charges are full of sound and fury, but the truth about Enron has yet to be told," said Fastow's lead attorney, John Keker. "When the truth is told to a jury of 12 honest Americans, Andy Fastow will be set free."
That remains to be seen. If Keker is wrong—and Fastow is convicted—the ex-Enron CFO could end up spending a whole lot of time in prison. Each wire-fraud charge and conspiracy charge carries a maximum sentence of 5 years, while the various money-laundering charges carry maximum jail terms of 10 and 20 years.
Fastow is expected to be arraigned on November 6 before a federal magistrate judge in Houston.
The indictment, handed down in a Houston courtroom, alleges that Fastow launched a series of complex off-balance-sheet deals in early 1997 that defrauded Enron while enriching himself, his family, and associates.
The scheme was undertaken to make the company appear more attractive to Wall Street analysts, credit-rating agencies, and others by creating an "illusion of business skill and success on the part of Fastow and other senior Enron management," according to a report in Reuters.
Yesterday's indictment does not mark the end of the Department of Justice's investigation into Fastow, however. Said deputy attorney general Larry Thompson: "We will use every appropriate measure to recover the ill-gotten gains of these corporate schemers. Justice demands it."
Shareholders who have filed lawsuits against Enron and Fastow will no doubt be glad to hear that.
SEC Investigating SEC
The year of the corporate scandal took a bizarre twist yesterday.
It appears that the Securities and Exchange Commission is investigating its own chairman, Harvey Pitt.
The probe apparently stems from the selection of William Webster as head of the new Public Company Accounting Oversight Board (PCAOB). In an article in the New York Times on Thursday, the paper alleged that Pitt withheld the fact that Webster headed an auditing committee for US Technologies Inc. That company—or what's left of it—is currently facing fraud charges.
According to the paper, Webster gave this information to Pitt and Robert K. Herdman, the agency's chief accountant, shortly before Webster was selected to head the board. Reportedly Pitt didn't pass the info on to the other SEC commissioners before the vote.
Webster said he was assured by Pitt that the staff of the commission had looked into the issue and that it would not pose a problem, according to theTimes story.
The SEC's staff was informed of Webster's work at US Technologies, and "the commission staff identified nothing of concern after reviewing the situation," SEC spokeswoman Christi Harlan told Bloomberg. "The chairman [Pitt] sees no reason to revisit the action that the commission took last Friday."
Harlan told wire services that the commission's inspector general, Walter Stachnick, would conduct the investigation.
"It's the normal route for internal inquiries," she told Reuters. "This is simply a look at the process and it is not a review of Judge Webster."
Some lawmakers were less than thrilled with "the process," however. In response to the allegations leveled by theTimes, Sen. Jon Corzine of New Jersey and House Minority Leader Richard Gephardt called for Pitt to resign, according to Bloomberg.
"Pitt should resign because he lacks the credibility to do the job," Sen. Paul Sarbanes of Maryland said at a press conference.
In fact, Sarbanes and several other members of Congress called on the General Accounting Office to look into the selection process.
Webster's nomination and selection has generated a fair amount of controversy among legislators, regulators, and accountants. Webster, a former federal judge, does not have an accounting background. As the onetime director of the Central Intelligence Agency and the Federal Bureau of Investigation, however, he should be pretty good at conducting investigations. In the era of the accounting fraud, that expertise could come in handy.
According to theTimes, Webster headed a three-person audit committee at US Technologies, which was delisted from the Nasdaq Stock Market in 1996. The Webster-led audit committee voted in 2001 to fire BDO Seidman., US Technologies's outside auditors, after the auditors raised concern about the company's internal controls.
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