Man Without Qualities

Tuesday, August 20, 2002

An Enron Insider Pleads Guilty

Former Enron Corp. executive Michael Kopper is reported ready to plead guilty to two charges of conspiring to commit wire fraud and money laundering and surrender $12 million in "criminally derived'' assets.

These would be the first criminal charges in the Enron investigation. Kopper is described as the "chief lieutenant" to former Enron Chief Financial Officer Andrew Fastow. But Enron Chairman Kenneth Lay told investigators he didn't even know Kopper.

Money laundering?

According to Associated Press, "As part of the plea agreement, Kopper has agreed to cooperate with investigators, a potential watershed event in the investigation since he has knowledge of Enron's innermost workings and financial dealings." But another Associated Report says it is not clear whether he has agreed to cooperate.

It isn't clear from the reports what the nature of Mr. Kopper's to-be-admitted wire fraud was, but a previous report by Enron's board of directors said that Mr. Kopper and his domestic partner, William Dodson, made $10 million on a $125,000 investment in one of the now-notorious Enron partnerships, Chewco, and that "Michael Kopper ... enriched himself substantially at Enron's expense."

So it seems likely that Mr. Kopper has a lot of detailed "knowledge of Enron's innermost workings and financial dealings". If the Justice Department can't obtain convictions now, it won't be for want of information and understanding. Some observors quoted in the various articles linked here now predict something of a rush of other Enron operatives to cut similar deals. Of course, the important thing here is whether these charges of crimes against Enron can be leverged though witness cooperation or otherwise into successful charges of crimes by Enron or its officers against the investing public. It is also interesting that Mr. Kopper is not pleading guilty to accounting, securities or bank fraud, which are the principle allegations against Enron and its operatives. But that may just be part of his deal with the prosecutors.

Mr. Kopper's and Chewco's role in the Enron disaster is described by the Wall Street Journal:

To meet the aim of keeping Chewco separate from Enron, it was essential that outside investors put up 3% of its equity, the minimum required under accounting rules. Mr. Kopper raised this money by getting a loan from Barclays PLC, the British bank, for two paper vehicles he helped create. Known as Big River LLC and Little River LLC, they would act as the independent investors in Chewco. But there was a catch: Barclays would only lend the money, $11.5 million in total, if an Enron affiliate turned around and deposited more than half that amount into two accounts at Barclays, helping ensure repayment. The Enron affiliate complied.

The upshot of this was that Enron backed the loan and that Little River and Big River never had enough of their own money truly at risk in Chewco to satisfy the 3% requirement. Yet for the next four years, Enron treated Chewco as if it did meet the 3% standard, allowing the company to tamp down its debt and bolster its earnings. Last year, when Enron decided to buy out Chewco, Mr. Kopper and his domestic partner, William Dodson, received $12.6 million from the company, a huge gain on the $125,000 they had originally provided to fund Little River and Big River. Mr. Dodson couldn't be reached for comment.

The payout was controversial within Enron. Former Treasurer Jeffrey McMahon told a special investigating committee of the company's board that he had suggested a $1 million payment to Messrs. Kopper and Dodson was fair, but he had been overruled by Mr. Fastow. Mr. McMahon said Mr. Fastow told him that "Skilling was OK with buying out Chewco at that price."

Comments: Post a Comment