They blamed him above all others for bringing down Enron Corp., forcing him to admit repeatedly under oath that, yes, he is a shameful excuse for a human being.
Yet in the end, the contrite Andrew Fastow stands to come through the Enron scandal in far better shape than the unrepentant Kenneth Lay and Jeffrey Skilling, the ex-Enron bosses who attacked him so vigorously during the criminal trial that ended last week with their convictions.
By pleading guilty and testifying for the government, the former finance chief has limited his exposure to 10 years in prison, while Lay and Skilling face 20 years or more at their sentencing on Sept. 11.
If Fastow gets off with a relatively light sentence, he will join the swelling ranks of white-collar offenders who have reaped significant rewards for their cooperation. The crackdown on corporate crime that culminated in Thursday’s Enron verdict has led to vast disparities in punishment between those who strike plea bargains and those relative few who go to trial.
Prosecutors say the dealmaking is essential to winning these complex, hard-fought cases. But when Bernard Ebbers gets 25 years for his actions at the top of WorldCom Inc., and the finance chief who engineered its massive fraud gets five in exchange for cooperating, some question if the government has too much power over white-collar targets.
“The current combination of factors give the government unprecedented leverage,” said David Yellen, dean at the Loyola University law school in Chicago.
Added Ellen Podgor, a Stetson University law professor who writes a white-collar crime blog, “There’s fear out there.”
Recent case law and legislation have given federal judges a freer hand in imposing long sentences once reserved for killers and drug traffickers.
“Sentences that were unbelievably rare 20 years ago are just not surprising any more,” Yellen said.
In addition, the government has embraced “deferred prosecution,” holding off on indicting suspect companies if they agree to turn on their executives. That practice has left the individual targets in grave legal peril, since their private conversations with company lawyers become fair game for prosecutors and other investigators.
“In the past, they stuck by the CEO,” Podgor noted. “Now, they fold immediately.”
Advocacy groups such as the U.S. Chamber of Commerce and American Bar Association have called on Congress to intervene. But so far, the Justice Department has vowed to stick with the basic strategy.
The public appears supportive too.
“People want to see these corporate and Wall Street wrongdoers put in jail,” said Jacob Zamansky, a securities lawyer who represents investors. “They want to see a pound of flesh.”
No illusions about conduct
The high stakes make cooperators such as Fastow all the more important. And at the Enron trial, he provided some of the most compelling testimony.
Jurors indicated they had no illusions about the criminality of the former chief financial officer, who admitted to stealing millions of dollars through off-the-books partnerships that also hid the company’s financial problems from the public.
“Fastow was Fastow,” juror Donald Martin reportedly said after the verdicts. “We knew where he was coming from.”
Yet the jury convicted Skilling on criminal counts that were primarily supported by Fastow’s testimony, in particular charges of making false statements to auditors.
“His cooperation was essential,” said Zamansky, who attended key parts of the trial. “Fastow was the only guy who could implicate Skilling in the side-deal partnerships.”
Fastow contributed to the tone of the trial, too, his remorse standing in damning contrast to the defendants’ defiance, said Zamansky. “He was contrite and humble and forthcoming about his misdeeds.”
Indeed, at several points during his testimony, one of the most notorious corporate criminals of his era seemed almost sympathetic, even after Fastow conceded that he had sold his wife down the river.
Lea Fastow, also a former Enron executive, served a one-year prison term for filing a false tax return related to her husband’s crooked dealings.
Under questioning from prosecutor John Hueston, Fastow explained that his wife went to prison because he had lied to her about checks from Enron reported as gifts on their tax returns.
“In short, I misled my wife,” he said.
Further, he admitted that he could have exonerated her, but testifying on her behalf would have forced him to incriminate himself, and he hadn’t yet reached his 10-year plea deal with prosecutors. So he chose to keep his mouth shut, and she pleaded guilty.
Daniel Petrocelli, Skilling’s lead attorney, bored into the episode on cross-examination.
“So for you to do such a thing, you must be consumed with insatiable greed,” he said.
“I believe I was extremely greedy and that I had lost my moral compass,” Fastow replied.
In another exchange, Petrocelli suggested that Fastow was intent on seeing Skilling suffer too.
“When the history books are written about what happened at Enron, you know your name is going to be written on the page. And you want to make sure that Mr. Skilling’s name is on that page too, don’t you?” Petrocelli asked.
“No,” Fastow replied. “You know what I’d like written on that page? That I had the character to recognize and admit what I’ve done wrong; to take responsibility for what I’ve done wrong; to ask forgiveness of my family, my friends, my community for what I’ve done wrong; and then to try to be the best person I could going forward.”
`Sorry to the core’
By the time attorney Michael Ramsey finished cross-examining him on behalf of Lay, the lean, graying Fastow appeared to be shrinking into his baggy suits.
“You had been stealing since 1997 and getting away with it?” Ramsey asked.
“Yes,” Fastow acknowledged.
“And lying like a dog about it?”
“I was lying, yes.”
The questioning continued in that vein, until Fastow, struggling for composure, told Ramsey, “I am ashamed to the core. I destroyed my life and, yes, sir, I am sorry to the core.”
Of course, such remorse must be weighed against Fastow’s actions at Enron, which contributed to the loss of more than 5,000 jobs and billions of dollars in wealth. Some believe the 10-year sentence is far too lenient.
“If the death penalty was available, he should have gotten it,” said Brian Wice, a Houston trial attorney given to hyperbole, who tracked the case closely. “Ten years at one time seemed draconian. Now it seems they’ve not only given him the courthouse, but the mineral rights under it.”
Lay’s attorney suggested Fastow might be out soon, predicting the government will move to reduce his sentence “sometime in his future.
“He did every trick they taught him and he did it reasonably well,” Ramsey said in an interview during the trial.
Others consider the agreed-upon sentence severe for a cooperator and expect Fastow to serve it. But the jury’s still out on how it will compare with other sentences imposed in this long-running saga.
As it stands, most of the key figures in the case have yet to receive their punishment, including prominent government witnesses such as Mark Koenig, Ken Rice and David Delainey.
Disparities between those who cooperated and those who fought could be less pronounced than in some previous cases.
“There are more Enron defendants awaiting sentence than have actually been sentenced,” noted Kathleen Brickey, a professor at the Washington University law school in St. Louis.
The fates of Skilling and Lay rest in the hands of U.S. District Judge Sim Lake, who presided over the trial, and he has considerable discretion in determining their sentences. Lake is known as a no-nonsense jurist willing to impose harsh prison terms on white-collar offenders.
He sentenced a midlevel Dynegy Inc. executive involved in a much smaller fraud to 24 years. Equally culpable co-defendants had pleaded guilty in exchange for maximum five-year terms, and the 5th Circuit Court of Appeals last year ordered that Jamie Olis be resentenced.
Lake has yet to revisit the Olis decision, but the instructions from the appellate court provide some telling guidance for what Enron executives can expect.
Olis got such a long term because Lake held him responsible for millions of dollars in stock market losses from “cooking the books” at Dynegy.
Since such accounting frauds rarely render a company worthless, and Dynegy is still around, calculating the actual losses is tricky. Holding Olis responsible for the entire stock market decline suffered by Dynegy overstates his personal culpability, the appellate judges ruled.
The exception, they said, is in that rare circumstance when a company’s value goes to zero, as in an “Enron or WorldCom situation.”
In those cases, apparently, the sky’s the limit.
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gburns@tribune.com
