Global Business

Enron Guilty Pleas Just Keep Coming

It's been seven years since energy giant Enron collapsed under the weight of massive fraud, but the ripple effect continues. This time it's a trio ...
Stephen TaubNovember 29, 2007

Just when you thought the Enron scandal was all in the past, three more participants in the massive fraud entered guilty pleas. A trio of former employees of the British bank National Westminster Bank Plc (Nat West) have pleaded guilty to a charge of wire fraud in connection with a secret investment with former executives of the Enron Corp., including former Enron Chief Financial Officer Andrew Fastow.

The former bankers had originally pleaded not guilty and were set to go on trial in January.

The individuals, David Bermingham, Giles Darby and Gary Mulgrew, each pleaded guilty to one count of wire fraud. They each agreed to a 37-month prison sentence and to repay about $7.3 million to the Royal Bank of Scotland, the successor bank to Nat West.

Drive Business Strategy and Growth

Drive Business Strategy and Growth

Learn how NetSuite Financial Management allows you to quickly and easily model what-if scenarios and generate reports.

Their plight has received a fair amount of attention over the past two years, as the U.S. government tried to extradite the former executives from the U.K. But in July 2006, the three one-time bankers exhausted their efforts to fight extradition to the U.S., and were flown to Texas to face the fraud charges. The British House of Lords had earlier refused to hear their case after they lost an appeal to the British High Court.

The former bank officers admitted secretly investing with Fastow and Michael Kopper, Enron’s former managing director of global finance, in a shell company dubbed Southampton L.P. Southhampton was an entity that Fastow created for the purpose of purchasing an asset the three defendants were selling on behalf of Nat West, according to a statement from Assistant Attorney General Alice S. Fisher. The trio invested a total of $250,000 in Southampton to gain an ownership interest in the company that they were charged with selling for Nat West.

The bankers were accused of concealing their scheme from Nat West through a series of financial transactions, including the use of options and off-shore entities, according to Fisher. In May 2000, within weeks of their investment, Bermingham, Darby and Mulgrew each received approximately $2.83 million. Kopper, Fastow and others received a total of approximately $12.3 million for their part in the scheme.

According to the Justice Department, the scheme worked like this: Kopper and Fastow bought the asset from Nat West for $1 million, and then liquidating the company to Enron for $20 million. The $19 million difference was then split among Fastow, Kopper, the three former Nat West bankers, and others. “These three defendants admitted today that they defrauded Nat West by entering into a secret and illegal deal with officers from Enron — a deal that yielded millions in profits for them personally at the expense of their employer,” said Fisher.

“Today’s guilty pleas demonstrate that the extent of the fraud at Enron went well beyond U.S. borders,” added Assistant Director Kenneth Kaiser, FBI Criminal Investigative Division.

As part of plea deals with the defendants, prosecutors have agreed to advise the Department of Justice’s Office of Enforcement Operations that they support the defendants’ application to the international prisoner transfer program, to serve some of the sentence in the United Kingdom. Charges against the three former British bankers were initially brought in July 2002 by the DoJ’s Enron Task Force. Remaining Enron Task Force cases are now being handled by the Fraud Section of the Criminal Division.

In November 2001, erstwhile energy-trading high-flier Enron Corp, collapsed into bankruptcy. Subsequent investigations led to fraud convictions of several senior company officers, including Fastow, former CEO Jeffrey Skilling, and one-time chairman the late Kenneth Lay. Enron’s failure also led to the shuttering of Arthur Anderson, the once-venerable accounting firm that was Enron’s auditor.

In October of this year, Enron Creditors Recovery Corp. announced a $1.7 billion payout to Enron creditors, the group’s eighteenth distribution since November 2004. In total, Enron creditors have recovered more than $13 billion through the bankruptcy process.