Prosecution of Andrew Fastow

Andrew Fastow was the Chief Financial Advisor for Enron. As such, he was responsible for the vast majority of the financial legal transgressions the company enacted prior to its dissolution early last decade. The specific laws that Fastow violated include wire fraud and securities fraud; he was sentenced for six years on two counts of each charge midway through last decade. Security fraud is deliberately misrepresenting a company’s assets in regards to its securities—and the perception of those securities. Fastow was aware that Enron’s securities were based on incorrect reporting which inflated its assets, making those securities more valuable than they otherwise would have been. Wire fraud is a deliberate misrepresentation of information wired within or between states. It is a crime because wiring information is a valuable means of communication, particularly in financial circles in which securities are involved. Fastow was frequently involved in the wire fraud with Enron whenever there was wire communication about the company’s financial information, which was in and of itself fraudulent. Thus, whenever that financial information was transacted via elements of the wire fraud law, that law was deliberately infringed. Wire fraud involves using federal communication devices for purposeful misrepresentations, including media such as telephones and email.

There were several things which Fastow did to repeatedly commit both wire fraud and securities fraud. Perhaps his actions to commit wire fraud were more pervasive than those to commit the former crime. One of the primary ways that Fastow committed wire fraud was by communicating with a number of banks to hide Enron’s mounting debt while inflating its assets. Fastow did this numerous times, calling these banks—such as Merrill Lynch “problem solvers” when it was time for Enron to do its quarterly accounting (Barrionuevo, 2006). These banks were complicit in Enron’s complicated fraud scheme because it was financially beneficial for them to be so. There is an inherent link between what Fastow did in his wire fraud as it related to securities fraud. When he would use communication consisting of wire fraud to detail information which affected Enron’s securities and the exchange of those securities, he was committing securities fraud as well. Fastow would also directly pay banks to enable Enron to meet desirable financial projections for quarters. Doing so was a means of bribing banks to commit fraud that was favorable to Enron’s finances. He would communicate these bribes via email or on the phone; those fraudulent projections in turn would influence security trades. Fastow also created shell companies—companies primarily existing on paper—to hide Enron’s debt and burgeon its assets (Rogers, 2004).

Fastow utilized a number of financial schemes to perpetrate wire fraud and security fraud. One of his tools was an extremely liberal usage of marked to market accounting, which is a legitimate accounting method when correctly applied. However, Enron was using this method (in which individuals estimate the worth of assets according to market forces and not based on actual, concrete estimates) to show wild profits for assets which never truly existed (Norris and Eichenwald, 2002), such as its scheme to enter the entertainment industry with Blockbuster. As Enron’s Chief Financial Officer, Fastow sanctioned this activity. Fastow’s penchant for creating shell companies to assume the burden of Enron’s losses was even more blatant an effort of flouting laws related to wire fraud and security fraud. The most notorious of these companies (although multiple ones were used by the company) was LJM (McLean and Elkind, 2013, p. 7). This paper company was explicitly created by Fastow because the acronym stood for the first names of his wife and sons. Fastow used this company and other paper companies either directly devised or authorized by him to function as fictitious companies working with Enron (Emshwiller, 2006). Thus, he could utilize these entities to encompass whatever losses Enron took which he thought were appropriate. Similarly, he could claim profits from these companies as Enron’s because they were involved in alleged partnerships. (McLean and Elkind, 2013, p. 152).