Former Enron Chief Fastow Testimony Makes Clear that Enron’s Banks Were the Real Masterminds Behind the Scheme to Defraud Investors

September 26, 2006
University of California

Sworn testimony by former Enron chief financial officer Andy Fastow, which was made public for the first time today (Sep. 26), coupled with internal documents detailing the scheme, makes it clear that Enron's banks were not innocent bystanders in one of the greatest corporate scandals in our nation's history – but that these financial institutions served as the actual masterminds behind the scheme to defraud investors.

Fastow provided the information against several banks in a sworn declaration filed with the federal court during his sentencing hearing in Houston today. The declaration reflects Fastow's efforts to cooperate with the ongoing efforts to hold Enron's banks, named as defendants in the civil class action lawsuit, accountable for their conduct in the Enron fraud.

“Mr. Fastow's cooperation, coupled with the smoking gun emails, memorandums and other documents that we have uncovered, make it clear for all to see that the Enron banks were not innocent drivers but served as the actual masterminds behind the scheme to defraud investors in one of the greatest financial frauds in history,” said William S. Lerach, of Lerach Coughlin Stoia Geller Rudman & Robbins LLP, lead counsel for the University of California and other plaintiffs in the Enron securities class action.

“He has now named names of high-ranking Enron bank officials and provided a road map on a sham-deal by sham-deal basis of how the Enron banks actively participated in the creation of financial structures that were designed to deceive   the markets, credit rating agencies and analysts –and cheat investors out of billions and billions of dollars. Andy Fastow's sworn statements, which are corroborated by contemporaneous documents, directly implicate some of our nation's largest banks in the Enron fraud.”

The banks which Fastow's sworn statements are focused upon include several of the largest and most important financial institutions in the world, including Barclays, Credit Suisse First Boston, Merrill Lynch, Deutsche Bank, Royal Bank of Canada and Toronto Dominion.

To date, these banks have yet to acknowledge their culpability in the Enron scheme and currently face enormous financial exposure for their active roles in the Enron scandal. Today's developments only increase the liability of the banks.

As the result of the Fastow testimony and discovery of documents, there is now incontrovertible evidence that the banks, motivated by corporate greed and personal profit, knowingly and actively helped to engineer Enron's efforts to deceive investors out of billions of dollars at virtually every step in the company's fraudulent scheme.

The sworn testimony and primary documents reveal that, beginning as far back as 1996, the banks intentionally worked with Enron to falsify the company's financial statements and deceive investors through phony financial deals that were not legal and would not have been approved by regulators.

Fastow's declaration – supported by internal e-mails and memorandums – also makes it very clear that, in many cases, Enron didn't tell these banks what to do – but just the reverse. It was the banks who told Enron how to deal with the company's significant financial challenges. When Enron had difficulty meeting its reported earnings targets and needed to generate more cash flow to maintain its credit ratings, the banks helped design the fraudulent and deceptive deals that led to the collapse of the company's stock and hurt tens of thousands of investors across the country.

Fastow's information, coupled with the internal documents from Enron and the banks, paint a detailed picture of the quid-pro-quo relationship between Enron and its financial institutions. Simply put, the banks would provide the financial tools for Enron executives to deceive investors, while the company paid off the banks with access to special deals, premium payments and insider access to future lucrative transactions.

A review of Fastow's sworn declaration and the thousands of pages of internal documents show that the banks and Enron engaged in three basic kinds of bogus financial deals:

For a copy of Fastow’s declaration:

For more information about UC and the Enron lawsuit:http://www.universityofcalifornia.edu/news/enron

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