Fastow Takes Aim at Banks He Says Helped Enron

Andrew Fastow, Enron's former chief financial officer, center, is to be sentenced today in Houston.
Andrew Fastow, Enron's former chief financial officer, center, is to be sentenced today in Houston. (By David J. Phillip -- Associated Press)
By Carrie Johnson
Washington Post Staff Writer
Tuesday, September 26, 2006

HOUSTON, Sept. 25 -- Former Enron Corp. finance chief Andrew S. Fastow soon may be headed to prison -- but not without a parting shot at the banks that he says helped the company disguise its financial problems.

As he moved to wrap up his personal affairs before he is sentenced Tuesday, Fastow, 44, has agreed to assist lawyers representing shareholders who lost billions of dollars when the energy trader filed for Chapter 11 bankruptcy protection in December 2001, according to documents reviewed by The Washington Post.

Wary of being branded the primary scapegoat for Enron's demise, Fastow is pointing to several investment banks that have rebuffed efforts to settle a class-action shareholder lawsuit. The banks, all of which have denied wrongdoing in court filings, include Merrill Lynch & Co., the Credit Suisse Group, and the Royal Bank of Scotland Group PLC.

Shareholders' lawyers have collected a record $8 billion for Enron investors in settlement agreements with J.P. Morgan Chase & Co., Citigroup Inc. and Bank of America Corp., among others.

But U.S. District Judge Melinda Harmon dealt the shareholders a significant setback earlier this year, when she dismissed Barclays PLC from the case. In legal reasoning embraced by other investment banks still fighting the lawsuit, the judge declared that shareholders had to prove more than just that bankers had aided or abetted Enron in concealing its financial woes.

Instead, the investors' lawyers, led by William S. Lerach, would be required to produce evidence the banks were directly involved in Enron's manipulations of its financial statements or in misleading investors -- a much higher burden of proof.

That's where Fastow, who often dealt with bankers as Enron's finance chief, comes into the picture. Fastow has consented to sit for an extensive deposition with plaintiff lawyers to tell them what he knows and to point them to documents that flesh out the bankers' role in helping Enron in exchange for hundreds of millions of dollars in fees, the documents indicate.

The former executive has said that he viewed banks as "problem-solvers" and that based on conversations he had with certain bankers, certain banks worked with Enron "intentionally and knowingly" to engineer deals that would affect the company's financial statements and reach technical accounting goals of questionable substance, according to a formal declaration by Fastow to be presented at his sentencing.

A representative from Lerach's firm is expected to appear at Fastow's sentencing Tuesday in Houston, where the lawyer plans to ask the judge for leniency from Fastow's expected 10-year prison sentence, citing the unusual amount of help Fastow is providing investors. Citing Fastow's participation, Lerach's firm said it intends to ask Harmon to reinstate Barclays and Deutsche Bank AG, which also was dismissed earlier this year, as defendants in the shareholders' lawsuit.

A Senate investigations subcommittee and a bankruptcy examiner previously studied the role of banks, which investigators said helped Enron structure billions of dollars in hidden loans and manufacture millions more in cash flow. By aggressively employing accounting tricks, with the assistance of friendly banks, Enron reported $10 billion in debt at the end of 2000, rather than the more accurate figure of $22 billion, according to a 2003 report by examiner R. Neal Batson.

Representatives for banks that have not settled the case, including Credit Suisse and Merrill, declined to comment about Fastow's assistance to plaintiffs. But legal analyst David Berg cast doubt on the credibility of the former Enron executive, who has admitted that he lied to auditors and stole from the company. Berg, a Houston lawyer representing Deutsche Bank, said in an e-mail that "enlisting Fastow is like inviting the devil to dinner."

Lerach, who is spearheading the plaintiffs' case, asserted in an e-mail that Fastow has provided key insights into "how the Enron banks actively participated in the creation of financial structures that were designed to deceive the markets, credit rating agencies and analysts -- and cheat investors out of billions and billions of dollars. Andy Fastow's sworn statements, which are corroborated by contemporaneous documents, directly implicate some of our nation's largest banks in the Enron corruption."

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