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Andrew Fastow

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Andrew Stuart Fastow (born December 22, 1961) is an American convicted felon and former financier who was the chief financial officer of Enron Corporation, an energy trading company based in Houston, Texas, until he was fired shortly before the company declared bankruptcy. Fastow was one of the key figures behind the complex web of off-balance-sheet special purpose entities (limited partnerships which Enron controlled) used to conceal Enron's massive losses in their quarterly balance sheets. By unlawfully maintaining personal stakes in these ostensibly independent ghost-entities, he was able to defraud Enron out of tens of millions of dollars.

Andrew Fastow
Born
Andrew Stuart Fastow

(1961-12-22) December 22, 1961 (age 62)
Washington, D.C., U.S.
EducationTufts University (BA)
Northwestern University (MBA)
Criminal statusReleased
SpouseLea Weingarten
Criminal chargeConspiracy, wire fraud, securities fraud, false statements, insider trading, and money laundering
PenaltySix years, followed by two years of probation

The U.S. Securities and Exchange Commission opened an investigation into his and the company's conduct in 2001. Fastow was sentenced to a six-year prison sentence and ultimately served five years for convictions related to these acts. His wife, Lea Weingarten also worked at Enron, where she was an assistant treasurer; she pleaded guilty to conspiracy to commit wire fraud, money laundering conspiracy and filing fraudulent income tax returns, and was sentenced to 12 months in prison despite a plea bargain which proposed she serve five months in jail, and 5 months in home-detention.[1]

External images
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image icon Andrew_Fastow[3]

Early life and education

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Fastow was born in Washington, D.C. He grew up in New Providence, New Jersey, the son of middle class Jewish[4][5] parents, Carl and Joan Fastow, who worked in retail and merchandising. Fastow graduated from New Providence High School, where he took part in student government, played on the tennis team, and played in the school band.[6] He was the sole student representative on the New Jersey State Board of Education.[7]

Fastow graduated from Tufts University in 1983 with a B.A. in Economics and Chinese. While there, he met his future wife, Lea Weingarten, daughter of Miriam Hadar Weingarten (a former Miss Israel 1958), whom he married in 1984. Fastow and Weingarten both earned MBAs at Northwestern University and worked for Continental Illinois bank in Chicago.[8][9] Both he and his wife attended Congregation Or Ami, a conservative synagogue in Houston where he taught Hebrew School.[5]

Early career

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While at Continental, Fastow worked on the newly emerging "asset-backed securities". The practice spread across the industry "because it provides an obvious advantage for a bank", noted the Chicago Tribune. "It moves assets off the bank's balance sheet while creating revenue." In 1984, Continental became the largest U.S. bank to fail in American history until the seizure of Washington Mutual in 2008.[10]

Due to his work at Continental, Fastow was hired in 1990 by Jeffrey Skilling at the Enron Finance Corp. Fastow was named the chief financial officer at Enron in 1998.[11]

Rise in Enron

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Deregulation in the US energy markets in the late 1990s provided Enron with trade opportunities, including buying energy from cheap producers and selling it at markets with floating prices. Andrew Fastow was familiar with the market and knowledgeable in how to play it in Enron's favor. This quickly drew the attention of then chief executive officer of Enron Finance Corp Jeffrey Skilling. Skilling, together with Enron founder Kenneth Lay, was constantly concerned with various ways in which he could keep company stock price up, in spite of the true financial condition of the company.

Fastow designed a complex web of companies that solely did business with Enron, with the dual purpose of raising money for the company, and also hiding its massive losses in their quarterly balance sheets. This effectively allowed Enron's audited balance sheet to appear debt free, while in reality it owed more than 30 billion dollars at the height of its debt. While presented to the outside world as being independent entities, the funds Fastow created were to take write-downs off Enron's books and guaranteed not to lose money. Yet, Fastow himself had a personal financial stake in these funds, either directly or through partners amongst them Michael Kopper.

Kopper, Fastow's chief lieutenant, pleaded guilty to taking part in a scam with Fastow that defrauded Enron shareholders of many millions. While defrauding Enron in this way, Fastow was also neglecting basic financial practices such as reporting the "cash on hand" and total liabilities. Fastow pressured some of the largest investment banks in the United States, such as Merrill Lynch, Citibank, and others to invest in his funds, threatening to cause them to lose Enron's future business if they did not.

Collapse

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In August, Skilling, who had been promoted to CEO of the entire company in February 2001, abruptly resigned after only six months, citing personal reasons. When reporters for The Wall Street Journal discovered an Enron "senior officer" had recently sold his interest in several partnerships that had done business with Enron, they initially thought that officer was Skilling. However, Enron spokesman Mark Palmer revealed that the "senior officer" was actually Fastow.[12]

After a former Enron executive leaked a copy of the offering memorandum for one of Fastow's partnerships, LJM–named for Fastow's wife and two sons–to the Journal, reporters bombarded Enron with further questions about the partnerships. The scrutiny died down after the September 11 attacks, but ramped up anew two weeks later with pointed questions about how much Fastow had earned from LJM. This culminated in a series of stories that appeared in the Journal in mid-October detailing the "vexing conflict-of-interest questions" about the partnerships, as well as the huge windfall he had reaped from them.[12][13]

On October 23, during a conference call with two directors delegated by the board, Fastow revealed that he had made a total of $45 million from his work with LJM–a staggering total, since he claimed to spend no more than three hours a week on LJM work.[12][13] On October 24, several banks told Enron that they would not issue loans to the company as long as Fastow remained CFO. The combined weight of these revelations led the board to accept Lay's recommendation to remove Fastow as CFO on October 25, replacing him with industrial markets chief and former treasurer Jeff McMahon.[12] He was officially placed on leave of absence, though the board subsequently determined that it had grounds to fire him for cause.[13]

It was later revealed that Fastow had been so focused on creating SPEs that he had neglected the most rudimentary aspects of corporate finance. Under his watch, Enron merely operated on a quarterly basis. Fastow never implemented procedures for tracking the company's cash or debt maturities. As a result, McMahon and a "financial SWAT team" put together in the wake of Fastow's ouster discovered Enron had almost no liquidity.[12][13]

Fastow's approach to hiding losses was so effective that the year before Enron declared bankruptcy, the Enron stock was at an all-time high of $90. As it turned out, the company was already well on its way to financial collapse, to the point that it was all but forced to seek a merger with rival Dynegy. By then, Enron's financial picture had declined so rapidly that the prospect of the Dynegy merger was the only thing keeping it alive. Dynegy tore up the merger agreement on November 28 in part due to the liquidity problems revealed after Fastow's ouster, and Enron declared bankruptcy three days later. By then, Enron's stock had dwindled to 40 cents per share, but not before many employees had been told to invest their retirement savings in Enron stock.

Sentencing and incarceration

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On October 31, 2002, Fastow was indicted by a federal grand jury in Houston, Texas, on 78 counts, including fraud, money laundering, and conspiracy. On January 14, 2004, he pleaded guilty to two counts of wire and securities fraud, and agreed to serve a ten-year prison sentence. He also agreed to become an informant and cooperate with federal authorities in the prosecutions of other former Enron executives in order to receive a reduced sentence.[14]

After entering into a plea agreement with a maximum penalty of 10 years in prison and the forfeiture of $23.8 million in assets, on September 26, 2006, Fastow was sentenced to six years in prison, followed by two years of probation. U.S. District Judge Ken Hoyt believed Fastow deserved leniency for his cooperation with the prosecution in several civil and criminal trials involving former Enron employees. Hoyt recommended that Fastow's sentence be served at the low-security Federal Correctional Institution in Bastrop, Texas.[15] Fastow was incarcerated at the Federal Prison Camp near Pollock, Louisiana.[16] On May 18, 2011, Fastow was released to a Houston halfway house for the remainder of his sentence.

On May 6, 2004, his wife, Lea Fastow, a former Enron assistant treasurer, pleaded guilty to a tax charge and was sentenced to one year in a federal prison in Houston, and an additional year of supervised release. She was released to a halfway house on July 8, 2005.[17]

Life after incarceration

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Soon after his release on December 16, 2011,[18] he began working as a document review clerk for law firm Smyser Kaplan Veselka LLP in Houston.[19]

Speaking engagements

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Since his release, Fastow has worked the public speaking circuit with presentations on ethics and business. In one such speech, Fastow recounts his crimes at Enron and reflects on his guilt:

“I found every way I could to technically comply with the [accounting] rules... But what I did was unethical and unprincipled. And it caused harm to people. For that, I deserved to go to prison.”[20]

In March 2012, Fastow spoke on ethics to students at the University of Colorado Boulder Leeds School of Business.

In June 2013, Fastow addressed more than 2,000 anti-fraud professionals at the Association of Certified Fraud Examiners' 24th Annual ACFE Global Fraud Conference.

In April 2014, Fastow spoke at Miami University in Oxford, Ohio, regarding business ethics.[21]

In February 2015, he spoke at: the University of St. Thomas, the University of Minnesota, the University of Texas (Austin campus), the University of Houston Bauer College of Business, the University of Southern California's Leventhal School of Accounting, and the University of Missouri School of Accounting.

In April 2016, March 2017, March 2018, and March 2019 Fastow spoke at the Ivey Business School.[22] The University of Tampa's Center for Ethics hosted him in October 2017.[23] In March 2022 the National Investor Relations Institute New York Chapter hosted Fastow as guest speaker for a discussion on business ethics, and the ambiguity and complexity of laws and regulations.[24]

Investment in KeenCorp

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Fastow became principal and investor in KeenCorp in 2016.[25] KeenCorp is a Netherlands-based company that offers analytics and artificial intelligence products that monitor "day-to-day workflow: E-mails, Microsoft Teams chats, Google Suite, and Slack" in order to analyze employee sentiment and engagement.

Originally, Fastow connected with KeenCorp when the company was beta testing its software using a digital database of Enron emails.[25]

In the media

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A number of books have been written about Enron and Fastow.

In 2003, Fastow was a prominent figure in 24 Days: How Two Wall Street Journal Reporters Uncovered the Lies that Destroyed Faith in Corporate America by the reporters who had broken some of the key stories in the saga, Rebecca Smith and John R. Emshwiller. They painted Fastow as in their words "a screamer, who negotiated by intimidation and tirade".

Also in 2003, Bethany McLean and Peter Elkind wrote the book The Smartest Guys in the Room: The Amazing Rise and Scandalous Fall of Enron ISBN 1-59184-008-2. In 2005, the book was made into a documentary film Enron: The Smartest Guys in the Room.

In 2005, Kurt Eichenwald's Conspiracy of Fools features Fastow as the book's antagonist.[26]

In 2009, Lucy Prebble's play Enron featured Fastow as a lead character.[27]

References

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  1. ^ "Lea Fastow to Begin Serving Prison Term". Los Angeles Times. From Associated Press. July 12, 2004.
  2. ^ "Forgive Those Who Trespass Against Us?". April 20, 2016.
  3. ^ "Legal cloud starting to lift for Fastow". November 27, 2011.
  4. ^ "FASTOW, Andrew". Biography.com. Archived from the original on October 19, 2011. Retrieved November 29, 2011.
  5. ^ a b "Andrew Fastow: A study in contrasts". October 3, 2002.
  6. ^ Iwata, Edward. "Fastow's fast track to infamy", USA Today. Accessed May 25, 2007. "The son of a buyer for a drug store chain, Fastow was born 40 years ago in Washington and raised in New Providence, N.J. The popular Fastow played the trombone in the New Providence High School Pioneers marching band and was active in student government."
  7. ^ Trail '80, the Yearbook of New Providence High School, 1980, p. 27.
  8. ^ Iwata, Edward (January 8, 2004). "A long fall for Enron couple". USA Today.
  9. ^ "Resume: Andrew Fastow". Bloomberg Businessweek. Archived from the original on October 22, 2013. Retrieved December 8, 2013.
  10. ^ Robin Sidel, David Enrich and Dan Fitzpatrick (September 26, 2008). "WaMu Is Seized, Sold Off to J.P. Morgan, In Largest Failure in U.S. Banking History". The Wall Street Journal.
  11. ^ Miller, Wilbur R. (2012). The Social History of Crime and Punishment in America. SAGE Publications. p. 540. ISBN 9781412988766. Retrieved November 4, 2014.
  12. ^ a b c d e Eichenwald, Kurt (2005). Conspiracy of Fools. Broadway Books. ISBN 978-0-7679-1180-1.
  13. ^ a b c d McLean, Bethany; Peter Elkind (2003). The Smartest Guys in the Room. New York: Portfolio Trade. ISBN 978-1-59184-008-4.
  14. ^ Biography.com
  15. ^ Jim Jelter (September 26, 2006). "Fastow gets six years for Enron misdeeds". Dow Jones MarketWatch.
  16. ^ Aaron Smith (May 18, 2011). "Enron exec Andy Fastow nears prison release". CNNMoney.
  17. ^ Mary Flood (July 8, 2005). "Lea Fastow released from halfway house". Houston Chronicle.
  18. ^ Andrew S. Fastow, inmate # 14343-179, Federal Bureau of Prisons, U.S. Department of Justice, at [1].
  19. ^ Francesca Di Meglio (March 22, 2012). "Enron's Andrew Fastow: The Mistakes I Made". Bloomberg Businessweek. Archived from the original on March 23, 2012.
  20. ^ "First Person: Andy Fastow and Me". CFO. April 24, 2019. Archived from the original on December 6, 2022. Retrieved August 25, 2022.
  21. ^ "Convicted Enron CFO to speak on ethics". April 18, 2014.
  22. ^ "Andrew Fastow to address HBA1 students".
  23. ^ "The University of Tampa – College of Business – Centers – Center for Ethics".
  24. ^ NIRI Virtual Hosts: A Discussion with Andy Fastow, Former CFO of Enron Corp - NIRI[permanent dead link]
  25. ^ a b "Software co. with former Enron CFO picks Houston for U.S. HQ". www.bizjournals.com. Retrieved August 25, 2022.
  26. ^ "Conspiracy of Fools by Kurt Eichenwald: 9780767911795 | PenguinRandomHouse.com: Books". PenguinRandomhouse.com. Retrieved October 9, 2020.
  27. ^ Hemming, Sarah (September 24, 2009). "Enron, Royal Court, London". Financial Times. London. Retrieved October 20, 2009.
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