With former Enron Corp. executive Michael Kopper’s guilty plea last month, sources indicate that federal investigators are now closer to indicting former CFO Andrew Fastow, and plan to also target former CEO Jeffrey Skilling. And former Chairman Kenneth Lay? Though he has yet to receive the notoriety of his former financial whiz kids, investigators in Houston and Washington, DC apparently have been quietly scrutinizing Lay’s stock sales in the months and years before the Houston company filed for bankruptcy — at least for now.

Michael Ramsey, one of Lay’s attorneys, said last week he has twice met with officials of the U.S. Department of Justice, the Federal Bureau of Investigation (FBI) and the SEC, and he said questions concerned Lay’s sale of about $70.1 million worth of stock back to the company. Records indicate that Lay sold about 4 million shares of Enron stock between 1997 and shortly before the bankruptcy filing 2001 for about $189.4 million in profits. Although Lay was not referred to as the target of fraud allegations, Ramsey said he told investigators that his client had done nothing wrong.

The discussions with investigators, said Ramsey, have centered on the stock sales by Lay back to the company during 2001. Although not corroborated by the SEC, Justice Department or FBI, Ramsey said he explained that the sales were part of a response to at least 15 margin calls on personal loans that Lay had obtained through Enron stock, allowing him to buy property and diversify his investments. Margin calls accelerated when Enron stock fell below $60 a share in May 2001, Ramsey said.

To pay off the $80-90 million owed, Lay apparently borrowed through a $4 million Enron credit line — part of his compensation package. He also gave Enron stock blocks worth $4 million to repay the credit line in 16 transactions between February 2001 and September 2001, according to an Enron filing with the SEC. Said Ramsey, “Ken Lay held on to as much stock as he could, as long as he could.” Unlike open-market trades, which require reports to the SEC following the sale, Enron lawyers agreed that Lay did not have to make a report. The transactions were not disclosed until Feb. 14, 2002, almost three months after the company had filed for bankruptcy.

Also last year in open-market stock trades, Lay sold close to 492,000 shares worth about $29.9 million, under a program that allows a set amount of shares to be sold each day. This type of trading is allowed under SEC rules. When Enron’s stock fell below $45 in July 2001, Lay ended the open-market trades.

Insider trading, considered the use of material information not publicized to buy or sell stock, has taken on a celebrity spotlight of its own in recent months, but the penalties are high: up to $1 million in fines and 10 years in prison. For instance, to make an insider case against Lay, investigators have to determine whether Lay knew more about Enron’s weak financial state than the public documents revealed.

Kopper, who pleaded guilty to accounting fraud in August, has told authorities that the company’s accounting problems had begun to appear in 1997, and investigators may be able to use that information in their scrutiny of Lay. According to SEC statements from that period, Lay apparently had been under pressure from the company’s board of directors to improve company results after the company missed its earnings targets in 1996 and 1997. The misses cost Lay some bonuses and early vesting of stock options, but the board gave him another opportunity on the options and even another option grant to encourage him to “once again deliver superior returns,” an Enron proxy filing states.

Following Enron’s 1998 performance, Lay qualified for accelerated vesting for 1994 options, and others were granted in 1996 and 1997. With the qualification, Lay was also able to obtain company shares at below market price when the stock reached nearly $90 a share in 2000. The former chairman exercised stock options between 1998 and 2000, realizing $180.3 million, according to SEC statements.

Turnaround specialist Stephen Cooper, currently interim Enron CEO, said recently that Enron’s former management was to blame for the company’s fall, and mentioned Lay by name. “Ken Lay, as has been publicly reported, took roughly $100 million out of Enron in 2001 and those shareholders are left holding the bag,” Cooper told reporters during a discussion of asset sales. At some companies he has dealt with in crisis situations, Cooper said management has failed to recognize business trends, and has pulled the company away from its core businesses. “In virtually all of the situations we deal with, people have decided they can float at 15,000 or 20,000 feet,” he said.

Many also are awaiting the final outcome of a ruling last month by a Houston Federal magistrate judge, who froze some of the accounts of former CFO Fastow, announced after Kopper pleaded guilty. Fastow’s accounts apparently were frozen after “someone” apparently attempted to move millions from one of the brokerage accounts targeted for seizure by the Justice Department, sources told the Houston Chronicle.

The warrants signed by U.S. Magistrate Calvin Botley were sealed, but sources said the scope of the planned seizures were broader than initially revealed in U.S. District Court in Houston on Aug. 21, when Kopper pleaded guilty to twin counts of conspiracy to commit wire fraud and money laundering, it reported. Kopper was released on $5 million bail after his appearance in court, and is scheduled to be sentenced next April 4.

The maximum prison term facing Kopper, 37, would be five years for the felony charge of wire fraud and 10 years for money laundering, plus penalties ranging from $500,000 to $750,000. However, federal prosecutors indicated they will recommend a lighter sentence to the judge, provided he continues to cooperate with the agencies in building cases against other ex-Enron executives. The warrants issued by Botley effectively block access to the accounts or “restrain the use” of other assets the federal government says were acquired with illegally-obtained money, according to the Chronicle.

In his plea agreement with the Justice Department and in court, Kopper admitted he and Fastow defrauded Enron of millions of dollars by establishing and running questionable off-the-book partnerships, such as Chewco, RADR and Southampton. Many 401(k) investors lost their life-savings as a result of the partnership schemes, which were intended to boost Enron profits and hide debt.

The Justice Department in documents identified for seizure about $23.5 million in bank accounts controlled by several former Enron executives and others, monies that it said were obtained through illegal acts traced back to Kopper. This included about $14.2 million held in bank accounts of Fastow and his wife, the Fastow Family Foundation and his brother, Peter Fastow. Also subject to forfeiture is a house owned by Fastow and his wife in the posh River Oaks’ section of Houston, according to the documents.

Other bank/brokerage accounts targeted for seizure by the Justice Department were: former Enron Treasurer Ben Glisan ($916,137); Kristina Mordaunt, one-time managing director of legal ($1,674,744); Kathy Lynn, vice president of finance ($218,326); Anne Yeager, manager of finance ($45,000); Capital Growth Holding ($6,370,000); and Capital GP Holding ($130,000). Also listed for forfeiture were the Houston home (property) of Mordaunt and her husband, Robert V. Ulsh Jr., and a 2000 Lexus automobile belonging to Ulsh.

If any of the monies or assets cannot be located, have been transferred or sold, have been placed beyond the jurisdiction of the court, have been “substantially diminished in value,” or have been “commingled with other property,” then Kopper will be required to surrender any interest he has in “other property” to the federal government under his plea agreement.

In other news, former Enron employees and some of its many creditors have begun to see some return on the plethora of lawsuits, after two settlements were announced. Andersen Worldwide SC, the umbrella group for Andersen accounting firm affiliates, agreed to pay a total of $60 million, the first in a slew of settlements (see related story). In another case, the New York court overseeing the bankrupt energy merchant’s case approved a $29 million severance-pay package.

Last Wednesday, U.S Bankruptcy Judge Arthur J. Gonzalez in New York approved the $29 million in severance pay for about 4,200 former Enron employees, ending six months of negotiations. The approval gives Enron direction to pay up to $13,500 per person (depending on length of employment). Some employees have already received about $13.9 million in severance. More important, perhaps, was Gonzalez’s ruling that gave the former employees the right to obtain up to $85 million of the $105 million in retention bonuses paid to Enron executives before the company went under last December.

For those “most hurt by Enron’s collapse,” the settlement gives “real dollars,” said attorney Ronald Sussman of Kronish Lieb Weiner & Hellman, who represents the employee creditor committee. With the settlement’s approval, Sussman said the creditors’ committee now will begin challenging the retention payments immediately, using the “fraudulent conveyance” laws, which refer to asset transfers by a company without valid consideration of being paid.

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