Risk & Compliance

Report: Feds Probing Former Enron Treasurer

Glisan said to be under investigation. Plus: stiff jail time for corporate crime, lots of jumbo shelves, and blue light special hits the pink sheets.
Stephen TaubDecember 30, 2002

First, Michael Kopper. Then Andrew Fastow. Now, it appears another former Enron Corp. finance executive may be facing a criminal indictment.

Ben F. Glisan Jr., the scandal-plagued energy trader’s former treasurer, was told by federal prosecutors he is under investigation for his role in Enron’s collapse. Glisan may face criminal charges for his part in the energy company’s descent into bankruptcy, according to Bloomberg, citing court papers.

Prosecutors have been trying to seize Glisan’s bank account, which they say contains $916,137 in illegally earned gains from an Enron special purpose entity called Southampton.

Glisan’s lawyers are trying to halt the court proceedings. Reportedly, they claim the ex-Enron treasurer’s “right against self-incrimination in the related criminal investigation will be burdened” if the court proceedings continue.

“Mr. Glisan has been informed by the Enron task force that he is a subject of that criminal investigation,” wrote Glisan’s lawyers in court papers made public Friday, said Bloomberg.

Southampton was the infamous off-balance-sheet vehicle through which Fastow, Kopper and four other Enron employees received payments from LJM1, another partnership set up to buy and hold Enron assets.

Glisan make out okay on his investment in Southampton. In a court filing earlier this month, Glisan reportedly sought to return about $629,000 of the $1.04 million he received from a $5,800 investment in the Southampton partnership. He also reportedly maintained his innocence.

“I consent to this payment despite my honest belief that I was an innocent owner of that money,” he said in the court filing, according to Bloomberg.

Glisan said he decided to surrender the money after he reviewed documents related to criminal charges against Fastow and Kopper, said the Bloomberg report.

About two months ago, Fastow was indicted on 78 counts, including fraud, money laundering, and conspiracy as part of an alleged scheme to artificially boost earnings and enrich himself.

In August, Kopper pled guilty to two counts of conspiracy. It is believed that Kopper may be cooperating with Federal authorities in their attempt to prosecute Fastow.

Meanwhile, the Enron task force has reportedly said it will seek a new indictment against the former Enron chief financial officer, suggesting it may add more charges.

Last month, former Enron finance executive Lawrence Lawyer pleaded guilty to failing to report as income almost $80,000 he accepted for helping transfer wind farms owned by Enron to a partnership used to hide debt, according to reports.

Coming: Stiffer Punishment for Corporate Crime

The era of fines and probation for law-breaking business executives appears to be coming to an abrupt end.

Bloomberg reports that the Justice Department is planning to seriously ratchet up punishment for convicted corporate executives. According to letters sent to the U.S. Sentencing Commission, the DOJ wants officers whose conduct causes more than $20 million in damage to their corporation to face 10 years in prison. The U.S. Sentencing Commission sets sentencing guidelines for federal judges).

“Effective enforcement and deterrence require that penalties be substantial and certain, with prison time being the rule, not the exception, for those who violate the law in the course of doing business,” Justice Department lawyer Eric Jaso reportedly wrote.

The wire service pointed out that in the aftermath of the accounting scandals at Enron Corp. and other companies, Congress directed the sentencing commission to ensure that corporate criminals receive stiffer penalties.

In letters dated Oct. 1 and Dec. 18, the Justice Department expressed concern that the commission would send a message to the public that “fraud crimes are not taken seriously.”

“We believe the commission’s action must ensure that white-collar criminals are held fully accountable and must result in tough, consistent, incarceratory penalties for those who would threaten the integrity of our financial markets and our economy,” Jaso wrote, according to Bloomberg’s account.

If the DOJ has its way, criminals whose fraud activities cause a company more than $1 million in losses could go to prison for about five years. Those responsible for more than $100,000 in losses may spend 18 months in prison, the wire service noted.

The government said it wants to “ensure that all but relatively minor business crimes will result in prison for the wrongdoer,” it added.

The commission is also considering automatic sentence provisions for abuses by directors and officers of public companies, which would probably result in more prison time. Bloomberg said the goal of the guidelines is to lead to uniform sentencing by federal judges throughout the country.

The Justice Department also wants to punish officials of public companies whose acts result in “substantial economic dislocation,” such as employee layoffs or “serious” financial loss to pension funds, retirement accounts or individual stockholders, Bloomberg noted.

White-collar criminals responsible for more than $50,000 in losses should also face prison, the Justice Department reportedly said.

“We believe that these penalty increases should apply not only to the billion-dollar cases that have dominated the news headlines in recent months, but also to the so-called ‘lower loss’ criminal fraud cases that make up the bulk of federal prosecutions around the country,” Jaso wrote to the commission.

Big Mac Attack

It’s been a bad fortnight for McDonald’s. On Dec. 17, the purveyor of Happy Meals announced the company would report a loss in the fourth quarter — the first quarterly loss ever recorded by the fast-food giant.

Then, on Friday, Moody’s Investors Service placed McDonald’s Aa3 long-term rating on review for possible downgrade.

The credit rating firm said the review was prompted by a combination of negative developments. At the top of the list: continued negative same store sales trends at McDonald’s outlets in the U.S. Moody’s also noted that the company’s European sales, which had rebounded in the the first half of the year, turned negative in the third quarter.

“Moody’s is therefore concerned that debt protection measures may again deteriorate in 2002, and take longer to rebound over the intermediate term due to increased industry competition, increasing risk profile, and the uncertain economic outlook,” it said in a statement. Moody’s assured, however, that if there is a rating change, it will be modest “considering the overall financial health of the company, and the strength of its cash flow.”

More Jumbo Shelves

A number of companies have registered jumbo shelf offerings in the past week.

Citigroup Inc., for one, filed to offer up to $15 billion of securities, including debt securities, index warrants, preferred stock, depositary shares or common stock. The financial services giant said it plans to use the proceeds for general corporate purposes, including funding operating units, financing possible acquisitions or business expansion and refinancing debt.

Citigroup also said it may use part of the proceeds from the sale of index warrants and indexed notes to hedge its exposure to payments that it may have to make on such index warrants and indexed notes.

Last week, Citigroup announced it will take a $1.5 billion charge for the fourth quarter of the year. Mostly, the set-aside will go to pay for a fine — and potential lawsuits — stemming from controversial stock recommendations issued by Citi’s investment banking arm, Salomon Smith Barney.

Also late last week: Praxair Inc., the world’s third-largest industrial gas company, filed a shelf to issue up to $1.375 billion worth of common and preferred stock and debt securities. The company indicated in a regulatory filing that it may use the proceeds for debt repayment, working capital increases and capital expenditures and acquisitions.

In addition, Nationwide Financial Services Inc. (and several of its trusts) filed a shelf registration to sell up to $1.5 billion worth of debt securities, preferred and class a common stock, depositary shares, and stock purchase contracts and units.

Short Take

Oh how the mighty have fallen. After 84 years of being traded on the New York Stock Exchange, shares of Kmart, Inc. began trading in mid-December on the pink sheets. The besieged retailer joins Enron Corp. and WorldCom Group on the rolls of the pink sheets.