Andrew S. Fastow, the former chief financial officer of Enron, was charged on Wednesday with engaging in a vast scheme to use off-the-books partnerships to fraudulently disguise the company's financial performance while enriching himself with millions of dollars in Enron's cash.
The charges -- including fraud, money laundering and conspiracy -- portray Enron as a company where fraud and deceit were the workaday mechanisms used to disguise the failings of a corporation secretly spinning out of control.
Allegations in the government's complaint implicate other executives and financial institutions -- notably Merrill Lynch & Co -- as having direct involvement in criminal activities, or at least knowledge of improper acts.
Fastow, 40, surrendered early this morning to FBI agents. He was then led in handcuffs to the federal courthouse, where a hearing was held to set the terms of his release. Magistrate Judge Martha Crone ordered Fastow to be released on US$5 million bond, secured by a US$3 million investment account and several homes, including that of his parents. Fastow and his wife surrendered their passports, and he agreed to the freezing of US$11 million in other cash. The complaint contends that Enron's chief accounting officer entered into an illegal agreement guaranteeing that the company would shield a partnership controlled by Fastow from losses in its dealings with Enron. The complaint does not name the executive, but the person who held that position was Richard Causey, whom Enron fired last February.
Without identifying Merrill Lynch, the complaint describes what it calls a "sham transaction" involving power barges moored off the Nigerian coast in which a financial institution helped Enron to improperly inflate its earnings. The deal was the subject of a Senate hearing in July.
The details in the complaint provide a strong signal that the government's continuing investigation will focus on the actions of Causey and Merrill Lynch, since both are described as direct participants in acts that prosecutors say were an illegal conspiracy. In a statement, Merrill disputed the allegations in the complaint, saying the transaction it conducted with Enron was legitimate; a lawyer for Causey did not return phone calls.
The complaint also suggests that Enron's longtime chairman and chief executive, Kenneth Lay, may have approved a partnership deal that now is central to the criminal case.
According to the complaint, Causey told a lawyer for Credit Suisse First Boston, another big Wall Street bank, in March 2000 that Enron's chief executive -- at that time Lay -- knew about and approved a partnership through which prosecutors say Fastow and others illegally pocketed millions in corporate cash.
The complaint gives no indication if the government believes Causey's account. A lawyer for Lay denied on Wednesday that his client knew anything about the arrangement, known as Southampton. Reid Weingarten, a lawyer for Causey, did not return telephone calls seeking comment.
While the complaint says that it does not include all of the evidence of criminal activities by Fastow, there appears to be no direct mention of another former Enron chief executive, Jeffrey K. Skilling, as having a connection with the alleged crimes. At one point, the complaint says that "the chief executive" along with others misled Enron's board about the nature of certain partnerships; it is not clear if the reference is to Skilling or Lay.
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