HOUSTON – Andrew Fastow (search), chief architect of the off-the-books deals that brought down Enron (search), pleaded guilty along with his wife Wednesday in a deal that could take prosecutors to the top of the corporate ladder at the scandal-ridden company.
The former finance chief agreed to a 10-year prison sentence and will help prosecutors build a case against the executives who once occupied the most opulent offices on the company's top floor: former chairman Kenneth Lay (search) and former CEO Jeffrey Skilling (search).
The plea bargains represent the biggest breakthrough yet in the two-year investigation into a scandal that led to the energy giant's collapse and rocked Wall Street and Washington alike.
"I and other members of Enron senior management fraudulently manipulated Enron's publicly reported financial results," Fastow said in a statement filed with the plea agreement, adding that the purpose was to mislead investors and inflate the company's stock price and credit rating.
Fastow's wife, Lea, pleaded guilty to filing false tax forms related to $141,000 in gains from 1997-2000 from a wind farm deal.
Lea Fastow, 42, was Enron's assistant treasurer.
Lea Fastow's deal calls for a five-month prison sentence and a year of supervised release, including five months of house arrest. U.S. District Judge David Hittner will decide later whether to accept the sentencing deal. Andrew Fastow, along with several other family members, attended the hearing.
"This is very significant to the Enron Task Force because whatever Andrew Fastow knows about what went on on the 50th floor, the Enron Task Force will now know as well," said Leslie Caldwell, head of the Justice Department unit investigating the company's downfall.
Both Lay and Skilling have maintained their innocence. Neither has been charged with a crime.
The Fastows remain free on bond and are scheduled for sentencing in April.
The Fastow plea arrangements had stalled last week after Hittner refused to guarantee Lea Fastow a five-month prison sentence, as agreed to with prosecutors.
Her attorney said the couple insisted on the five-month sentence to ensure that their two young sons have at least one parent at home. Hittner demanded that he retain the right to alter Lea Fastow's term.
"There really is life after Enron for all of us, we believe, and we're trying to get through this process the best we can," said Lea Fastow's lawyer, Mike DeGeurin.
Andrew Fastow, 42, is the highest-ranking Enron executive charged in the 2001 collapse of the Houston-based energy company. Without a plea, he would have gone to trial on 98 counts of fraud, money laundering, insider trading and other charges.
He pleaded guilty to two counts of conspiracy to fraud. The agreement calls for the other counts against him to be dismissed if he fulfills his end of the bargain, which includes forfeiting at least $23.8 million of his assets and cooperating with authorities.
Prosecutors say Fastow masterminded a sea of partnerships and tangled financing deals that hid Enron debt and inflated company profits while funneling millions of dollars to him, his family and selected friends. The partnerships had names like LJM (the first initials of Fastow's wife and two sons) and Chewco (after the "Star Wars" character Chewbacca).
One guilty plea covered the LJM partnership, while the other involved transactions that Fastow used to pocket an estimated $45 million in fees.
"I also engaged in schemes to enrich myself and others at the expense of Enron's shareholders and in violation of my duty of honest services to those shareholders," Fastow said in his statement.
Some experts believe the plea could break open the case against Lay and Skilling.
"Unquestionably, this is the breakthrough that the government has been pursuing," said Robert Mintz, a former federal prosecutor and an expert in white-collar crime. "There is nobody besides Fastow who can make this case for the government and that's why they have been pursuing him for so long and so aggressively."
Enron declared bankruptcy in December 2001 amid mass layoffs, leaving investors and retirees stuck with worthless stock. In the following months, WorldCom, Global Crossing, Adelphia Communications and others suffered a similar fate as investigators uncovered a raft of accounting failures across corporate America.
Enron also became a source of ammunition for Democrats because of President Bush's close ties to Lay, a major campaign backer.
Lay and Skilling have steadfastly maintained their innocence. Lay's attorney, Michael Ramsey, said Wednesday that Lay has no worries if Fastow tells the truth.
Bruce Hiler, Skilling's attorney, said his client had done nothing to merit charges.
"We understand the pressure to enter a plea rather than stand trial in the poisoned atmosphere that has been created around Enron, but that doesn't change the truth as to my client," Hiler said.
Former company insiders have said Fastow's aggressive and inventive approach to structuring deals appealed to Skilling. After CFO magazine showered Fastow with the "Excellence Award for Capital Structure" in 1999, Skilling told the publication: "Andy has the intelligence and the youthful exuberance to think in new ways."
Fastow said through his lawyers when he was initially charged in October 2002 that he never believed he was committing any crime.
"Enron hired Andy to arrange off-balance sheet financing. Enron's board of directors, its CEO, and its chairman, directed and praised his work. Accountants and lawyers reviewed and approved his work," his lead attorney, John Keker, told reporters at the time.
Fastow and Lay, among others, declined to testify before a U.S. House committee looking into the Enron collapse, but Skilling did answer questions in February 2002. He said he knew of no problems at Enron when he abruptly resigned in the summer of 2001, citing family reasons.
Enron was the nation's seventh-biggest company in 2001, and its bankruptcy was the largest such filing in U.S. history at the time. Its stock once traded at above $90, but sank to mere pennies amid the collapse.