Home > Business > Article

First Enron exec admits money laundering
August 22 2002

The first former Enron Corp executive to admit to crimes in the company's crash has acknowledged that he raked in millions in a corporate shell game and said his high-ranking boss was involved.

Entering guilty pleas to money laundering and conspiracy to commit wire fraud, Michael Kopper, 37, told US District Judge Ewing Werlein in an emotionless monotone voice that he ran or helped create several partnerships that earned him and others millions of dollars while hiding debt and inflating profits at Enron.

He agreed to cooperate with investigators and to surrender $US12 million ($A22.1 million) he gained illegally from Enron partnerships to the US Justice Department and the Securities and Exchange Commission.

The money "is going to go back to shareholders of Enron," said Leslie Caldwell, head of a nationwide task force of federal prosecutors probing the company's collapse.

Kopper also apologised to those hurt when Enron quickly spiralled into bankruptcy in late 2001, costing thousands of workers their jobs and retirement savings.

He could be sentenced to 15 years in prison and fined up to double the amount determined to have been fraudulently gained. But his testimony against others at Enron could earn him leniency.

"We think this is a substantial breakthrough in our investigation," Caldwell said. "His knowledge will become our knowledge."

Kopper stood expressionless and silent outside the courthouse as his lawyer, David Howard of Philadelphia, read a statement.

"Michael has admitted that he misused his position at Enron to enrich himself and others, and in so doing violated his duties as an Enron employee," Howard said.

"Michael hopes that these actions demonstrate his deep regret for his own conduct."

Kopper also admitted funnelling money to his one-time boss Andrew Fastow, Enron's former chief financial officer, who prosecutors assert engineered the partnerships, and soliciting friends to invest in them so they would appear to meet accounting criteria to be considered separate from Enron.

Fastow, his wife, Lea, and those friends face property and bank accounts seizures if prosecutors can show those gains emerged from money laundering when they were involved in the partnerships.

The $US31.6 million ($A58.2 million) in bank accounts include nearly $US22 million ($A40.52 million) held by Fastow, his family or his family's foundation; $US1.6 million ($A2.95 million) held by former Enron lawyer and partnership investor Kristina Mordaunt; and $US8 million ($A14.73 million) held by other investors and two holding companies.

Also at stake is Fastow's newly constructed $US2.6 million ($A4.79 million) house in Houston's wealthiest neighbourhood; Mordaunt's $US356,450 ($A656,450) house in another affluent area; and a 2000 Lexus in her husband's name.

"Under the money laundering statute, proceeds that are traceable to criminal activity are forfeitable," Caldwell said, and prosecutors will seek a court order allowing them to seize the accounts and property.

"We're moving forward very aggressively," she said.

Kopper's cooperation represents a potential watershed in the investigation, given his knowledge of Enron's innermost workings.

It also is a drastic shift from February when he invoked the right not to testify before Congress.

The $US12 million ($A22.1 million) Kopper will turn over to the government within 30 days will be split between the Justice Department and the SEC and may be distributed to both shareholders and former employees, said SEC lawyer Luis Mejia.

Kopper told Werlein he had sought counselling in the past year for stress-related anxiety and took medication to help him sleep.

He remains free after posting $US5 million ($A9.21 million) bond set by the judge. Sentencing was set for April 4, 2003.

Investigators are looking into whether Enron managers, from former chairman Kenneth Lay and former chief executive Jeff Skilling on down, knew the network of partnerships - largely backed by Enron stock - was being used to hide debt and inflate profits.

Michael Ramsey, one of Lay's lawyers, said Lay, who stepped down as CEO in January and gave up his board seat the next month, didn't know Kopper and doubted his case would affect Lay.

"He couldn't pick him out of a (police) lineup," Ramsey said.

Robert Mintz, a former federal prosecutor, said Kopper "embodies the perfect cooperating witness because he is not viewed by the public as being one of the most culpable defendants, but at the same time he has a vast array of knowledge and can point the government in the right direction."

Prosecutor Tom Hanusik said if Kopper had gone to trial, the government would have said that from May 1997 through September last year, Kopper took advantage of off-balance-sheet partnerships and accounting methods to funnel millions of dollars to himself, Fastow and others.

One of the partnerships, Chewco, was created in 1997 to buy a pension fund's interest in an Enron partnership.

Kopper and his domestic partner invested $US125,000 ($A230,200) in Chewco and he received more than $US7 million ($A12.89 million) and "some of that was kicked back to Enron's CFO," Hanusik said.

The investment from Kopper and his partner didn't satisfy accounting rules that require a 3 per cent independent investment in a partnership to allow it to stay off a company's books.

Mordaunt was one of the investors in another partnership, Southampton Place, where a series of complicated transactions left the investors enriched at Enron's expense.

Printer friendly version Email to a friend

Source: geocities.com/sun_day1080110801