Andrew Fastow

Andrew Stuart Fastow
Born:	December 22, 1961 Washington, D.C.
Charges:	Conspiracy to commit securities fraud, Conspiracy to commit wire fraud
Sentence:	6 years federal prison, 2 years supervised release, Forfeiture of $23.8 million
Facility:	Federal Prison Camp, Pollock, Louisiana
Status:	Released (2011)

Andrew Stuart Fastow (born December 22, 1961) is an American former corporate executive who served as Chief Financial Officer of Enron Corporation from 1998 to 2001.

Fastow became one of the central figures in the Enron scandal, one of the largest corporate fraud cases in American history, which led to the company's bankruptcy in December 2001 and destroyed $60 billion in shareholder value. He pleaded guilty to two counts of conspiracy and served five years of a six-year prison sentence. Since his release, Fastow has reinvented himself as a speaker and consultant on corporate ethics and risk management.

Background and Education

Fastow was born in Washington, D.C., and grew up in New Providence, New Jersey, as the son of middle-class Jewish parents Carl and Joan Fastow, who worked in retail and merchandising. He graduated from New Providence High School, where he participated in student government, played on the tennis team, and was a member of the school band. Fastow served as the sole student representative on the New Jersey State Board of Education during high school.

He earned a Bachelor of Arts degree in Economics and Chinese from Tufts University in 1983. While at Tufts, Fastow met his future wife, Lea Weingarten, daughter of Miriam Hadar Weingarten (a former Miss Israel 1958). They married in 1984. Fastow later received an MBA from the Kellogg School of Management at Northwestern University.

Career at Enron

Fastow joined Enron in 1990 and rose through the ranks to become Chief Financial Officer in 1998. At Enron, he gained a reputation as a financial innovator, creating complex financial structures that allowed the company to hide debt and inflate earnings. His creation of off-balance-sheet special purpose entities (SPEs) was central to Enron's apparent financial success—and ultimately its downfall.

The Fraud Scheme

Special Purpose Entities

Fastow masterminded a complex web of off-balance-sheet partnerships and special purpose entities that allowed Enron to hide billions of dollars in debt from investors and maintain artificially high stock prices. The most notorious of these entities included LJM Cayman, L.P. (LJM1), LJM2 Co-Investment, L.P. (LJM2), the Raptor structures, and Chewco.

These entities were designed to appear as independent third parties for accounting purposes while actually remaining under Enron's control. This allowed Enron to move debt off its balance sheet, recognize revenue that should not have been recognized, and hedge its investments using structures backed by Enron's own stock.

Self-Dealing Transactions

While Fastow claimed to spend no more than three hours a week on LJM work, he revealed to Enron directors in October 2001 that he had personally made a total of $45 million from his involvement with these entities—a staggering sum that represented a massive conflict of interest.

According to court documents, Fastow entered into undisclosed side deals that enriched himself at the expense of Enron and its shareholders. In the Southampton transaction, for example, Fastow received proceeds from a $30 million buyout by Enron of an entity called LJM Swap Sub LP, which Fastow controlled. These self-dealing transactions violated his duty of loyalty to Enron's shareholders.

The Raptor Structures

One of the most egregious schemes involved the Raptor structures, which Enron used to hedge potential declines in certain investments. The purported 3% outside equity required for Enron to avoid consolidating the Raptor vehicle in its financial statements—a $30 million investment from LJM2—was not actually at risk. Fastow had entered into an undisclosed side deal in which Enron agreed to return LJM2's investment plus a guaranteed $11 million return before conducting any hedging activity.

To conceal this side deal, Fastow and others manufactured a $41 million payment to LJM2 through a "put" transaction in which Enron essentially bet that its own stock price would decline.

Unraveling of the Fraud

By October 2001, the combined weight of revelations about Fastow's conflicts of interest and the true nature of Enron's financial structures led to his removal. On October 24, several banks informed Enron they would not issue loans to the company as long as Fastow remained CFO. The following day, the board accepted CEO Ken Lay's recommendation to remove Fastow, replacing him with Jeff McMahon.

It was later revealed that Fastow had been so focused on creating special purpose entities that he had neglected basic corporate finance functions. Under his watch, Enron operated merely on a quarterly basis without adequate long-term financial planning.

Enron filed for bankruptcy on December 2, 2001, just five weeks after Fastow's ouster. The company's stock, which had traded as high as $80 per share in August 1999, became virtually worthless.

Federal Indictment and Prosecution

On October 31, 2002, Fastow was indicted by a federal grand jury in Houston, Texas, on 78 counts, including fraud, money laundering, and conspiracy.

Plea Agreement

Prosecutors secured Fastow's guilty plea after separately indicting his wife, Lea Fastow, on criminal tax evasion charges stemming from "Hanukkah gift checks" in the names of their children that were actually kickbacks from a co-conspirator in the RADR transaction. Facing the prospect of both parents serving lengthy prison terms while their two young sons were raised by others, Fastow decided to negotiate a plea agreement.

On January 14, 2004, Fastow pleaded guilty to two counts of conspiracy—one to commit wire fraud and one to commit securities fraud. Under the terms of his plea agreement, Fastow agreed to cooperate fully with the government's investigation, serve a ten-year prison sentence, and forfeit more than $23.8 million in assets.

Cooperation with Prosecutors

Fastow became the government's star witness in subsequent Enron prosecutions. He testified extensively at the trial of former Enron CEO Ken Lay and CEO Jeffrey Skilling in 2006, providing detailed testimony about how both executives were complicit in the fraudulent accounting practices that caused Enron's collapse.

Fastow's cooperation extended beyond criminal prosecutions. He assisted Enron shareholders' lawyers in recovering money from banking institutions that had facilitated the fraud.

Sentencing

On September 26, 2006, U.S. District Judge Kenneth Hoyt sentenced Fastow to six years in prison—four years less than the maximum agreed to in his plea deal—followed by two years of probation. Judge Hoyt granted the reduced sentence in recognition of Fastow's extraordinary cooperation with prosecutors.

"What moves the arm of justice is mercy," Judge Hoyt told Fastow. "You were drunk on the wine of greed... [but] you had a double portion, in that your wife shared in that [punishment]."

Lea Fastow had separately pleaded guilty to conspiracy to commit wire fraud, money laundering conspiracy, and filing fraudulent income tax returns. She was sentenced to 12 months in prison—more than the five months in jail plus five months of home detention proposed in her plea agreement—highlighting the severity with which the court viewed the family's misconduct.

Prison Experience

Judge Hoyt recommended that Fastow serve his sentence at the low-security Federal Correctional Institution in Bastrop, Texas. However, Fastow was ultimately incarcerated at the Federal Prison Camp near Pollock, Louisiana. On May 18, 2011, Fastow was released to a Houston halfway house to serve the remainder of his sentence.

Post-Release Career

Since completing his sentence in 2011, Fastow has reinvented himself as a speaker and consultant on corporate ethics, risk management, and decision-making in "gray zones"—situations where technically permissible actions may still create unmanaged risks.

According to his speaker biography: "Andy is the only Enron executive that has taken full responsibility for his actions and has both repeatedly and publicly expressed remorse. In addition to serving his prison sentence, Andy forfeited far more money than he ever earned at Enron. He is credited with being the individual most responsible for helping recover $6 billion for Enron shareholders."

Fastow now consults with management teams, boards of directors, attorneys, and hedge funds on how to identify potentially critical finance, accounting, compensation, and cultural issues. His training sessions focus on risk in the "gray zone," where decisions that may be technically permitted give rise to risks that are not properly considered.

Terminology

• Special Purpose Entity (SPE): A subsidiary created by a parent company to isolate financial risk; Enron used SPEs to hide debt and manipulate earnings.

• Off-Balance-Sheet Financing: A form of financing in which large capital expenditures are kept off a company's balance sheet through various accounting methods.

• Mark-to-Market Accounting: An accounting practice that values assets based on current market prices rather than historical cost; Enron used this method to record projected profits as current income.

• Raptor Structures: A series of special purpose entities created by Fastow to hedge Enron's investments, which were backed by Enron's own stock rather than independent capital.

Frequently Asked Questions

Q: What did Andrew Fastow do at Enron?

As CFO of Enron, Fastow masterminded a complex web of off-balance-sheet partnerships and special purpose entities that hid billions of dollars in debt from investors. He personally made $45 million from self-dealing transactions through entities he controlled. His fraud contributed to Enron's bankruptcy in December 2001.

Q: How long was Andrew Fastow in prison?

Fastow was sentenced to six years in federal prison but served approximately five years. He was released to a Houston halfway house on May 18, 2011. The judge reduced his sentence from the maximum agreed upon in recognition of his extraordinary cooperation with prosecutors.

Q: Did Andrew Fastow testify against other Enron executives?

Yes, Fastow became the government's star witness. He testified extensively at the trial of Ken Lay and Jeffrey Skilling in 2006, providing detailed testimony about how both executives were complicit in fraudulent accounting practices.

Q: What is Andrew Fastow doing now?

Since completing his sentence, Fastow has reinvented himself as a speaker and consultant on corporate ethics and risk management. He consults with companies on identifying critical finance and accounting issues and speaks about decision-making in ethical gray zones.