Risk & Compliance

First Enron Criminal Trial Begins Today

Four former Merrill Lynch executives and two former Enron employees face charges involving a $12 million sale of three electricity-generating barge...
Ed Zwirn and Stephen TaubSeptember 20, 2004

After three postponements, the first criminal trial involving former energy giant Enron Corp. is finally scheduled to begin today in federal court in Houston. But although former chief financial officer Andrew Fastow was clearly at the center of the alleged fraud, according to the Houston Chronicle, prosecutors have apparently not added him to their witness list.

The case involves a $12 million sale of three electricity-generating barges off the coast of Nigeria in 1999. Four former Merrill Lynch executives — James A. Brown, Daniel Bayly, William Fuhs, and Robert Furst — and two former Enron employees — Dan Boyle and Sheila Kahanek — are charged with conspiracy to commit wire fraud, fraud, making false statements, and obstruction. Merrill Lynch itself has not been charged with wrongdoing.

The government alleges that Fastow orally promised Merrill Lynch that if it pretended to buy the barges so Enron could fraudulently pump up its bottom line, then Fastow would guarantee the property would be bought back and Merrill Lynch would make a profit, the Chronicle explained.

The barges were repurchased by an Enron side company that Fastow controlled, and Merrill Lynch did make a profit, added the newspaper.

“His [Fastow’s] presence could alter the way the jury sees the case,” a defense attorney told the paper. “If they pull him out of a hat later, it could be problematic.”

According to The Washington Post, the defense alleges Fastow made no such promise — at least, not an explicit guarantee. Instead, defense attorneys maintain that Fastow “left that impression with the Merrill executives without putting it in writing or making concrete verbal promises,” the Post added.

Lawyers speculated that Fastow isn’t being called in this case because prosecutors prefer not to provide the defense with government interviews with Fastow. They are also apparently concerned that if Fastow didn’t do well during cross-examination, he wouldn’t be as effective as a witness in a trial against former chairman Kenneth Lay, former chief executive officer Jeffrey Skilling, and former chief accounting officer Richard Causey. All three maintain their innocence; a date for that trial has yet to be scheduled.

Possible prosecution witnesses in the current case include three former Enron officials who have already pleaded guilty to crimes: former treasurer Ben Glisan Jr., who is serving a five-year prison term for conspiracy; former finance executive Michael Kopper, who pleaded guilty to fraud and money laundering charges in August 2002 and is awaiting sentencing; and Paula Rieker, a former Enron investor relations executive, who pleaded guilty to insider trading last month.

Other possible government witnesses, according to the Chronicle, are four current or former Merrill Lynch employees, four other former or current Enron employees, two former partners of Arthur Andersen, and government officials with the Federal Bureau of Investigation, the Securities and Exchange Commission, and a legislative committee that took testimony about the barge deal.

A pretrial ruling earlier this month will allow prosecutors to give jurors in the Nigerian barge case “a glimpse” of other questionable Enron deals, reported the Associated Press, though the government will still be required to focus on the barge transaction.