Enron partnerships meant millions for a few company insiders
WASHINGTON (AP) — Enron’s use of partnerships not only hid the company’s losses and huge debts, it made a few company insiders very rich, very fast — with almost no financial risk.
The biggest hauls, investigators say, were by those who created and ran the complex web of shell investment entities that were largely financed by Enron and concealed the company’s shaky balance sheet.
Two of those men — Andrew Fastow, who created the partnerships, and Michael Kopper — were expected to appear Thursday at a House Energy and Commerce subcommittee hearing. They were considered likely to decline to answer questions, citing the 5th Amendment protection against self incrimination.
Over a two-month period, a family foundation run by Fastow turned $25,000 into $4.5 million. Kopper saw an investment of $125,000 become $10.5 million in less than three years. Lesser players, brought into the network of transactions by Fastow and Kopper, earned $500,000 to $1 million from investments of less than $3,000 to $5,800.
“Is that even legal,” Rep. Bart Stupak D-Mich., asked at a hearing into Enron’s collapse.
“Not without taking a tremendous amount of risk,” replied William C. Powers, the University of Texas law school dean and Enron investigator. In these cases, he added. the investors “took very little risk” and often were wheeling and dealing among themselves.
The source of their windfall was a system of investment entities with names like Jedi and Chewco (from the Star Wars movies), Raptor and Rhythms, and Big Doe, apparently a play on words.
One partnership, called Southampton Place, also the name of the uppercrust Houston neighborhood where Fastow lived, proved to be especially lucrative.
Fastow, through a family-owned foundation, cashed in on $4.5 million from his $25,000 investment in Southampton Place after holding it only two months.
Other investors in the partnership were Benjamin Glisan, former Enron treasurer who also was involved in setting up several of the partnerships; Kristin Mordaunt, an attorney and later general counsel of Enron Communications, and several employees of Fastow’s finance department, one of whom said she was told that her ability to invest was viewed as a “bonus” for good work.
Both Glisan and Mordaunt invested $5,800 and collected about $1 million, according to investigators. The other employees invested less than $3,000 and are believed to have earned returns of about $500,000 each, according to the internal Enron investigation.
Like Fastow, Kopper invested $25,000 in Southampton Place, but did it through a related entity called Big Doe. How much he gained is not yet determined, said Powers.
Kopper did extremely well on another front.
Fastow had recruited him in late 1997 to manage Chewco Investments, one of the key partnerships. Over three years Kopper earned $2 million in management fees although the Powers report concluded that it could not be determined “what, if anything, Kopper did to justify the payments.”
In mid-2000, it was decided Enron should purchase Chewco, in which Kopper was the principal investor.
According to congressional and Enron investigators, Jeffrey McMahon, at the time Enron’s treasurer, told Fastow the buyout should pay Kopper about $1 million. His investment had been $125,000.
According to McMahon, Fastow handled the negotiations with Kopper and came back with a buyout proposal tens times that, or $10.5 million. The buyout was completed in March 2001, and the higher price prevailed, according to the Enron report.
As for Fastow, investigators have determined that received about $30 million while working in a dual role as Enron’s chief financial officer and as head of one of the partnerships he created.
The Enron board of directors did not question that arrangement, nor ever inquire about how much money Fastow was getting from the partnership, Powers said.