Executives' greed big factor in Enron crash, probe shows
But new revelations by investigators and insider Michael Kopper indicate that whole deals may have been structured more to let executives skim money than to dress up Enron's books.
"Some people still had a little bit of hope that maybe they were just skirting the law and weren't as arrogant and greedy as they really were," said Rod Jordan, 64, one of thousands laid off last year when Enron crashed. "That hope is gone now."
Kopper, the first former Enron executive to plead guilty to crimes related to the company's failure, admitted to creating partnerships designed to enrich himself, his former boss Andrew Fastow and others at Enron at the expense of the company and its shareholders.
He admitted to money laundering and conspiracy to commit wire fraud in three partnership schemes designed to look like legitimate business deals. He said friends, selected Enron workers and members of Fastow's family stepped up as investors and, using loans from Fastow or Kopper, put up money to make the partnerships appear independent of Enron.
The partnerships then did deals with Enron that generated millions of dollars. Kopper kept some profits and generated massive fees for handling the deals. He also said he funneled money back to Fastow and his family as well as the investors.
Kopper worked for Enron from 1994 to July last year, when he quit to run one of Fastow's partnerships.
Enron pushed Fastow out in October last year after acknowledging that he raked in more than $30 million from partnerships.
"There was an arrangement between myself and the Enron CFO whereby I did take some of the proceeds which I received from managing and running that partnership and passed them on to he and his family," Kopper said of a structure called Chewco created in 1997.
Sherron Watkins, the Enron executive who also worked for Fastow in Enron's finance division, tried to warn former Enron chairman Kenneth Lay about accounting problems. She also asked for and was granted a reassignment to another department, fearful that a vengeful Fastow would try to have her fired.
She warned Lay in a celebrated seven-page memo released by Congress in January that centered on entities other than the three partnerships on which prosecutors are focusing.
While she was wary of Fastow, she had a good impression of Kopper.
"She thought he was extremely bright and smart," said her lawyer, Philip Hilder. "Not knowing what he was involved in, she was shocked and disappointed to learn the depth of his involvement regarding kickbacks."
Kopper, a 37-year-old former banker with degrees from Duke University and the London School of Economics, lived well on the millions he pocketed from those dealings in addition to $3.63 million in salary, bonuses, restricted stock and other payments in the year before Enron's collapse.
The native Long Islander and his domestic partner William Dodson live in a $1.4 million marble and stucco four-bedroom house where an off-duty police officer was stationed yesterday to keep unwanted visitors off the property. Between them, the pair have four BMWs registered in their names, including a 2002 BMW 531, a 1997 Z3 convertible Roadster and a 2002 BX5 sport-utility vehicle.
Kopper's house is barely a block from the exclusive high-rise where Lay lives on the 33rd floor in a $7.1 million penthouse.
A few blocks away in River Oaks, Houston's wealthiest neighborhood, workers continued yesterday to finish construction on Fastow's new five-bedroom stone house worth more than $2 million. Fastow lives in another high-end neighborhood southeast of River Oaks, and recently decided to sell the new home when it is completed rather than move into it, said his spokesman, Gordon Andrew.
The decision may be moot.
Prosecutors are seeking the forfeiture of Fastow's new house and more than $14 million in accounts in his or his family's names. Other Enron employees who prosecutors allege were involved in the schemes also face frozen bank accounts and asset forfeitures if prosecutors convince a judge they were obtained illegally.
Fastow's spokesman declined comment on prosecutors' forfeiture intentions. Among the other assets held by Fastow and his wife Lea are a 1999 Porsche 911 convertible and a 2000 Mercedes-Benz E320 wagon.
"It was clearly a combination of striving to constantly meet expectations or exceed expectations for Wall Street, but at the same time, there's certainly an element of personal greed here," said Robert Mintz, a former federal prosecutor under Michael Chertoff, head of the Justice Department's criminal division.
Kopper agreed to surrender $12 million he gained illegally through his accounting machinations as part of his agreement to cooperate with prosecutors.
Sherri Saunders, 55, was laid off from her job as a secretary in Enron's investment group when Enron went bankrupt Dec. 2. She said Kopper may have been invisible to the public, but the executive with a taste for Armani suits was known in the company.
"People talked about him all the time," she said. "I could see a lot of that stuff going on, but I never would have guessed in a million years that it was such a house of cards with such greedy, noncaring people."