Lea Fastow: Charges, Rejected Plea Deal, and Sentence

Lea Fastow is the wife of former Enron Chief Financial Officer Andrew Fastow and a former Enron assistant treasurer who pleaded guilty in 2004 to filing a false federal income tax return. She served one year in jail, the maximum for the misdemeanor charge, and her prosecution became a pressure point that federal prosecutors used to secure her husband’s cooperation in the wider Enron investigation.¹

What She Was Charged With

Her criminal liability grew out of a scheme built around one of the off-the-books partnerships that defined the Enron fraud. In early 1997, Enron wanted to divest certain wind farm facilities while keeping operational control, and Andrew Fastow arranged for nominee investors to buy the assets through a set of entities collectively known as RADR. Michael Kopper, a managing director under Fastow, acted as the conduit: Fastow secretly loaned money to Kopper, who passed it to the nominees to fund the purchases.²

Between August 1997 and July 2000, RADR generated roughly $2.7 million in profits, and Enron’s July 2000 repurchase of the wind farms produced another $1.8 million. Kopper funneled portions of those profits back to the Fastow family through an annual “gifting” arrangement. He and his domestic partner issued checks of $10,000 or less to each family member, an amount chosen to sit below the IRS gift-reporting threshold.² The Fastows hid the payments from their accountant and filed joint federal returns that omitted them. The total came to $204,444.34 between 1997 and 2000.¹

Andrew Fastow later told investigators he had misled his wife about the checks, describing them to her as genuine gifts. She endorsed and deposited them on that basis.³ Prosecutors treated her conduct as separate from the accounting fraud at the heart of the Enron collapse, stating that it “was not part of the crimes to which her husband and others have pleaded guilty involving the manipulation of Enron’s books.”¹

The Indictment and Its Strategic Purpose

On May 1, 2003, a federal grand jury in Houston returned a six-count indictment charging her with conspiracy to commit wire fraud, money laundering conspiracy, and four counts of filing false income tax returns.⁴ The charges were announced alongside a 109-count superseding indictment against Andrew Fastow and two other former executives.⁵

The Fastows had two sons, ages four and eight at the time, and both parents faced the prospect of prison. Andrew Fastow, exposed to decades of potential imprisonment on the fraud and conspiracy charges against him, decided a plea deal was preferable to a scenario in which both parents served lengthy sentences at once.⁶ NPR reported that the resolution of Lea Fastow’s case “could clear the way for a plea agreement from Andrew Fastow and his cooperation in the government’s probe of the Enron collapse.”⁷

On January 14, 2004, Andrew Fastow pleaded guilty to two conspiracy counts, one for wire fraud and one for securities fraud, and agreed to cooperate fully. Under his deal he faced ten years in prison and forfeited more than $23 million in assets.⁸ At the later trial of Kenneth Lay and Jeffrey Skilling, defense attorney Daniel Petrocelli cross-examined Andrew Fastow about her prosecution, arguing he had been “willing to save himself, at the expense of his wife” and could have spared her prison time by cooperating sooner.⁹

The Rejected Plea Deal

In January 2004, Lea Fastow pleaded guilty to a single count of filing a false tax return under an agreement that called for a “split” sentence of five months in prison followed by five months of home confinement. That fell at the low end of the applicable sentencing guidelines range of ten to sixteen months. The arrangement was designed so the couple could stagger their prison time and keep one parent home with their sons.¹⁰ Prosecutors supported the split sentence, telling the court that nearly sixty percent of federal tax offenders in fiscal year 2001 had received split sentences or probation.¹¹

On April 7, 2004, U.S. District Judge David Hittner rejected the agreement, stating that “the court declines to voluntarily limit its role in sentencing” and indicating he considered a sentence within the ten-to-sixteen-month range appropriate.¹¹ She withdrew her plea, the case reverted to the original six-count felony indictment, and Judge Hittner set trial for June 2 in Brownsville. Conviction on all counts would have exposed her to fifteen to twenty-one months under the guidelines.¹²

Instead of going to trial, the parties reached a new deal. She pleaded guilty to a freshly filed misdemeanor charge of filing a false federal income tax return, and the original felony indictment was dismissed.¹

Sentence and Time Served

On May 6, 2004, Judge Hittner sentenced her to one year in jail, the maximum for the misdemeanor, followed by one year of supervised release. Under the plea, she was not eligible for a cooperation-based reduction and could not earn the “good time” credits that typically shave roughly fifteen percent off a federal sentence. She agreed to provide truthful assistance to the ongoing Enron investigation and relinquished any claim to nearly $30 million in forfeited funds seized for the benefit of fraud victims.¹

She reported to the Federal Detention Center in downtown Houston on July 12, 2004, an unusual placement for a nonviolent misdemeanor offender. The eleven-story facility houses men and women of various security classifications, most incarcerated for drug crimes, and is far more restrictive than the minimum-security camps where most white-collar offenders serve time.¹³ On June 7, 2005, she was moved to the Leidel Comprehensive Sanctions Center, a downtown Houston halfway house, and she was released on July 8, 2005.¹⁴

Andrew Fastow was sentenced on September 26, 2006, more than a year after her release, preserving the staggered arrangement the couple had sought. Judge Kenneth Hoyt sentenced him to six years, below the ten years called for in his plea, citing his cooperation in the Enron prosecutions.⁸ Together the couple forfeited or relinquished rights to nearly $30 million in cash and property.¹⁵

Background Before Enron

Born Lea Weingarten, she grew up in River Oaks, an heiress to a Houston grocery and real estate fortune. Her mother, Miriam Hadar, was Miss Israel in 1958, and her parents divorced in 1970. She attended Tufts University and earned an MBA from Northwestern’s Kellogg School of Management, then worked at Continental Bank in Chicago before moving to Houston in 1990 and joining Enron in 1991. She married Andrew Fastow in 1985 and served as an assistant treasurer at Enron until 1997, when she resigned after the birth of her first son.¹⁶

The LJM Connection

Although she was never charged in the accounting fraud at the center of Enron’s collapse, her name was attached to it in another way. The two private equity funds Andrew Fastow created to transact business with Enron, LJM1 and LJM2, were named using the initials of Lea and their sons, Jeffrey and Matthew. LJM1, formed in 1999, held $15 million in investment capital; Andrew Fastow later raised at least $200 million for LJM2 to handle more and larger transactions with Enron.³ The Enron board approved the arrangement despite what a Senate subcommittee later described as “clear conflicts of interest,” finding that the funds “transacted business with Enron and profited at Enron’s expense.”¹⁷

1
U.S. Department of Justice. Lea Fastow Sentenced
2
U.S. Securities and Exchange Commission. SEC Charges Michael Kopper
3
The Spokesman-Review. Fastow Breaks Long Silence
4
U.S. Department of Justice. Enron Indictments Announced
5
PBS NewsHour. Enron Charges Announced
6
Famous Trials. Fastow Plea
7
NPR. Plea Accepted in Enron-Related Case
8
U.S. Department of Justice. Andrew Fastow Sentenced
9
PBS NewsHour. Defense Blasts Fastow’s Enron Trial Testimony
10
Los Angeles Times. Fastow Sentenced
11
New York Times. Judge Rejects Plea Deal of Enron Figure’s Wife
12
NBC News. Enron Plea Deal Falls Apart
13
CBS News. Enron Wife Goes to Jail
14
Houston Chronicle. Lea Fastow Released From Halfway House
15
NBC News. Lea Fastow Released
16
Herald-Tribune. Fastows: From a Life of Privilege to Prison
17
U.S. Government Publishing Office. The Role of the Board of Directors in Enron’s Collapse