Andrew Fastow
Encyclopedia
Andrew Stuart Fastow was the chief financial officer
of Enron
Corporation that was based in Houston, Texas
until the U.S. Securities and Exchange Commission opened an investigation into his and the company's conduct in 2001. Fastow was one of the key figures behind the complex web of off-balance-sheet
special purpose entities
(limited partnership
s which Enron controlled) used to conceal their massive losses. Fastow is serving a six-year prison sentence for charges related to these unlawful acts.
He grew up in New Providence, New Jersey
, the middle of three sons in a Jewish family. His parents, Carl and Joan Fastow, worked in 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. He was the sole student representative on the New Jersey State Board of Education.
Fastow graduated from Tufts University
in 1983 with B.A.s
in economics and Chinese. While there, he met his future wife, Lea Weingarten
, whom he married in 1984. Fastow and Weingarten both earned MBA
s at Northwestern University
and worked for Continental Illinois National Bank and Trust Company
in Chicago
.
, 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.
Based on 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.
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 a partner. Fastow made tens of millions of dollars defrauding Enron in this way, while 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. Fastow also reportedly got these firms to fire their analysts who dared to report Enron with negative ratings. See Conspiracy of Fools
.
Fastow's approach to hiding losses was so effective that the year before Enron actually declared bankruptcy
, a year in which the company was already well on its way to financial collapse, the Enron stock was at an all time high of $90. Ultimately it would drop down to 40 cents per share, but not before many employees had been told to invest their retirement savings in Enron stock.
on 78 counts including fraud, money laundering, and conspiracy. On January 14, 2004, he pled 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.
Prosecutors were so impressed with his performance that they ultimately lobbied for an even shorter sentence for Fastow. He was finally sentenced to six years at Oakdale Federal Correctional Complex in Oakdale, Louisiana. On May 18th, 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 misdemeanor
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.
near Pollock, Louisiana
with a projected release date of December 17, 2011. In May 2011 Fastow was transferred to a halfway house in preparation for his release.
(2005) by Kurt Eichenwald
which essentially features Fastow as the book's antagonist.
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 1591840082. In 2005, the book was made into a film Enron: The Smartest Guys in the Room
.
Chief financial officer
The chief financial officer or Chief financial and operating officer is a corporate officer primarily responsible for managing the financial risks of the corporation. This officer is also responsible for financial planning and record-keeping, as well as financial reporting to higher management...
of Enron
Enron
Enron Corporation was an American energy, commodities, and services company based in Houston, Texas. Before its bankruptcy on December 2, 2001, Enron employed approximately 22,000 staff and was one of the world's leading electricity, natural gas, communications, and pulp and paper companies, with...
Corporation that was based in Houston, Texas
Houston, Texas
Houston is the fourth-largest city in the United States, and the largest city in the state of Texas. According to the 2010 U.S. Census, the city had a population of 2.1 million people within an area of . Houston is the seat of Harris County and the economic center of , which is the ...
until the U.S. Securities and Exchange Commission opened an investigation into his and the company's conduct in 2001. Fastow was one of the key figures behind the complex web of off-balance-sheet
Off-balance-sheet
Off-balance sheet usually means an asset or debt or financing activity not on the company's balance sheet.Some companies may have significant amounts of off-balance sheet assets and liabilities. For example, financial institutions often offer asset management or brokerage services to their clients...
special purpose entities
Special purpose entity
A special purpose entity is a legal entity created to fulfill narrow, specific or temporary objectives...
(limited partnership
Limited partnership
A limited partnership is a form of partnership similar to a general partnership, except that in addition to one or more general partners , there are one or more limited partners . It is a partnership in which only one partner is required to be a general partner.The GPs are, in all major respects,...
s which Enron controlled) used to conceal their massive losses. Fastow is serving a six-year prison sentence for charges related to these unlawful acts.
Early life and education
Fastow was born in Washington, D.C.Washington, D.C.
Washington, D.C., formally the District of Columbia and commonly referred to as Washington, "the District", or simply D.C., is the capital of the United States. On July 16, 1790, the United States Congress approved the creation of a permanent national capital as permitted by the U.S. Constitution....
He grew up in New Providence, New Jersey
New Providence, New Jersey
New Providence is a borough on the northwestern edge of Union County, New Jersey, United States. It is located on the Passaic River, which forms the county boundary with Morris County...
, the middle of three sons in a Jewish family. His parents, Carl and Joan Fastow, worked in merchandising. Fastow graduated from New Providence High School
New Providence High School
New Providence High School is a public high school in the borough of New Providence, in Union County, New Jersey, operating as the only high school in the New Providence School District, serving students in grades 9 through 12. New Providence High School opened on September 8, 1958 with its first...
, where he took part in student government, played on the tennis team, and played in the school band. He was the sole student representative on the New Jersey State Board of Education.
Fastow graduated from Tufts University
Tufts University
Tufts University is a private research university located in Medford/Somerville, near Boston, Massachusetts. It is organized into ten schools, including two undergraduate programs and eight graduate divisions, on four campuses in Massachusetts and on the eastern border of France...
in 1983 with B.A.s
Bachelor of Arts
A Bachelor of Arts , from the Latin artium baccalaureus, is a bachelor's degree awarded for an undergraduate course or program in either the liberal arts, the sciences, or both...
in economics and Chinese. While there, he met his future wife, Lea Weingarten
Lea Fastow
Lea Weingarten Fastow is the wife of former Enron executive and convicted felon Andrew Fastow and is the second former Enron executive to go to prison after Enron collapsed due to fraud in December 2001....
, whom he married in 1984. Fastow and Weingarten both earned MBA
Master of Business Administration
The Master of Business Administration is a :master's degree in business administration, which attracts people from a wide range of academic disciplines. The MBA designation originated in the United States, emerging from the late 19th century as the country industrialized and companies sought out...
s at Northwestern University
Northwestern University
Northwestern University is a private research university in Evanston and Chicago, Illinois, USA. Northwestern has eleven undergraduate, graduate, and professional schools offering 124 undergraduate degrees and 145 graduate and professional degrees....
and worked for Continental Illinois National Bank and Trust Company
Continental Illinois National Bank and Trust Company
The Continental Illinois National Bank and Trust Company was at one time the seventh-largest bank in the United States as measured by deposits with approximately $40 billion in assets. In 1984, Continental Illinois became the largest ever bank failure in U.S. history, when a run on the bank led to...
in Chicago
Chicago
Chicago is the largest city in the US state of Illinois. With nearly 2.7 million residents, it is the most populous city in the Midwestern United States and the third most populous in the US, after New York City and Los Angeles...
.
Early career
While at Continental IllinoisContinental Illinois National Bank and Trust Company
The Continental Illinois National Bank and Trust Company was at one time the seventh-largest bank in the United States as measured by deposits with approximately $40 billion in assets. In 1984, Continental Illinois became the largest ever bank failure in U.S. history, when a run on the bank led to...
, Fastow worked on the newly emerging "asset-backed securities"
Asset-backed security
An asset-backed security is a security whose value and income payments are derived from and collateralized by a specified pool of underlying assets. The pool of assets is typically a group of small and illiquid assets that are unable to be sold individually...
. The practice spread across the industry "because it provides an obvious advantage for a bank," noted the Chicago Tribune
Chicago Tribune
The Chicago Tribune is a major daily newspaper based in Chicago, Illinois, and the flagship publication of the Tribune Company. Formerly self-styled as the "World's Greatest Newspaper" , it remains the most read daily newspaper of the Chicago metropolitan area and the Great Lakes region and is...
. "It moves assets off the bank's balance sheet while creating revenue." In 1984, Continental became the largest U.S. bank to fail
Insolvency
Insolvency means the inability to pay one's debts as they fall due. Usually used to refer to a business, insolvency refers to the inability of a company to pay off its debts.Business insolvency is defined in two different ways:...
in American history until the seizure of Washington Mutual
Washington Mutual
Washington Mutual, Inc. , abbreviated to WaMu, was a savings bank holding company and the former owner of Washington Mutual Bank, which was the United States' largest savings and loan association until its collapse in 2008....
in 2008.
Based on his work at Continental, Fastow was hired in 1990 by Jeffrey Skilling
Jeffrey Skilling
Jeffrey Keith "Jeff" Skilling is the former president of Enron Corporation, headquartered in Houston, Texas. In 2006 he was convicted of multiple federal felony charges relating to Enron's financial collapse, and is currently serving a 24-year, four-month prison sentence at the Federal...
at the Enron Finance Corp. Fastow was named the Chief Financial Officer
Chief financial officer
The chief financial officer or Chief financial and operating officer is a corporate officer primarily responsible for managing the financial risks of the corporation. This officer is also responsible for financial planning and record-keeping, as well as financial reporting to higher management...
at Enron in 1998.
Rise in Enron
DeregulationDeregulation
Deregulation is the removal or simplification of government rules and regulations that constrain the operation of market forces.Deregulation is the removal or simplification of government rules and regulations that constrain the operation of market forces.Deregulation is the removal or...
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
Chief executive officer
A chief executive officer , managing director , Executive Director for non-profit organizations, or chief executive is the highest-ranking corporate officer or administrator in charge of total management of an organization...
of Enron Finance Corp Jeffrey Skilling
Jeffrey Skilling
Jeffrey Keith "Jeff" Skilling is the former president of Enron Corporation, headquartered in Houston, Texas. In 2006 he was convicted of multiple federal felony charges relating to Enron's financial collapse, and is currently serving a 24-year, four-month prison sentence at the Federal...
. Skilling, together with Enron founder Kenneth Lay
Kenneth Lay
Kenneth Lee "Ken" Lay was an American businessman, best known for his role in the widely reported corruption scandal that led to the downfall of Enron Corporation. Lay and Enron became synonymous with corporate abuse and accounting fraud when the scandal broke in 2001...
, 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 a partner. Fastow made tens of millions of dollars defrauding Enron in this way, while 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
Merrill Lynch
Merrill Lynch is the wealth management division of Bank of America. With over 15,000 financial advisors and $2.2 trillion in client assets it is the world's largest brokerage. Formerly known as Merrill Lynch & Co., Inc., prior to 2009 the firm was publicly owned and traded on the New York...
, Citibank
Citibank
Citibank, a major international bank, is the consumer banking arm of financial services giant Citigroup. Citibank was founded in 1812 as the City Bank of New York, later First National City Bank of New York...
, and others to invest in his funds, threatening to cause them to lose Enron's future business if they did not. Fastow also reportedly got these firms to fire their analysts who dared to report Enron with negative ratings. See Conspiracy of Fools
Conspiracy of Fools
Conspiracy of Fools is a book by Kurt Eichenwald detailing the Enron scandal. It was published in 2005 when Eichenwald was a business journalist with The New York Times.- Synopsis :...
.
Fastow's approach to hiding losses was so effective that the year before Enron actually declared bankruptcy
Bankruptcy
Bankruptcy is a legal status of an insolvent person or an organisation, that is, one that cannot repay the debts owed to creditors. In most jurisdictions bankruptcy is imposed by a court order, often initiated by the debtor....
, a year in which the company was already well on its way to financial collapse, the Enron stock was at an all time high of $90. Ultimately it would drop down to 40 cents per share, but not before many employees had been told to invest their retirement savings in Enron stock.
Legal problems at Enron
On October 31, 2002, Fastow was indicted by a federal grand jury in Houston, TexasHouston, Texas
Houston is the fourth-largest city in the United States, and the largest city in the state of Texas. According to the 2010 U.S. Census, the city had a population of 2.1 million people within an area of . Houston is the seat of Harris County and the economic center of , which is the ...
on 78 counts including fraud, money laundering, and conspiracy. On January 14, 2004, he pled 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.
Prosecutors were so impressed with his performance that they ultimately lobbied for an even shorter sentence for Fastow. He was finally sentenced to six years at Oakdale Federal Correctional Complex in Oakdale, Louisiana. On May 18th, 2011 Fastow was released to a Houston halfway house
Halfway house
The purpose of a halfway house, also called a recovery house or sober house, is generally to allow people to begin the process of reintegration with society, while still providing monitoring and support; this is generally believed to reduce the risk of recidivism or relapse when compared to a...
for the remainder of his sentence.
On May 6, 2004, his wife, Lea Fastow
Lea Fastow
Lea Weingarten Fastow is the wife of former Enron executive and convicted felon Andrew Fastow and is the second former Enron executive to go to prison after Enron collapsed due to fraud in December 2001....
, a former Enron
Enron
Enron Corporation was an American energy, commodities, and services company based in Houston, Texas. Before its bankruptcy on December 2, 2001, Enron employed approximately 22,000 staff and was one of the world's leading electricity, natural gas, communications, and pulp and paper companies, with...
assistant treasurer, pleaded guilty to a misdemeanor
Misdemeanor
A misdemeanor is a "lesser" criminal act in many common law legal systems. Misdemeanors are generally punished much less severely than felonies, but theoretically more so than administrative infractions and regulatory offences...
tax charge and was sentenced to one year in a federal prison
Federal prison
Federal prisons are run by national governments in countries where subdivisions of the country also operate prisons.In the United States federal prisons are operated by the Federal Bureau of Prisons. In Canada the Correctional Service of Canada operates federal prisons. Prison sentences in these...
in Houston, and an additional year of supervised release. She was released to a halfway house
Halfway house
The purpose of a halfway house, also called a recovery house or sober house, is generally to allow people to begin the process of reintegration with society, while still providing monitoring and support; this is generally believed to reduce the risk of recidivism or relapse when compared to a...
on July 8, 2005.
Sentencing and incarceration
After entering into a plea agreement with a maximum penalty of 10 years in prison and the forfeiture of US$23.8 million in family assets, on September 26, 2006, Fastow was sentenced to six years, 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. As of June 2010, Fastow was Inmate #14343-179 at the federal penitentiaryUnited States Penitentiary, Pollock
The United States Penitentiary, Pollock, is a Federal Bureau of Prisons facility for male offenders in unincorporated southeastern Grant Parish in central Louisiana. The facility, surrounded by the Kisatchie National Forest and in proximity to Pollock, is north of Alexandria...
near Pollock, Louisiana
Pollock, Louisiana
Pollock is a town in Grant Parish, Louisiana, United States. It is part of the Alexandria, Louisiana Metropolitan Statistical Area. The population was 376 at the 2000 census. Pollock and southern Grant Parish have been booming in recent years with residential and business growth...
with a projected release date of December 17, 2011. In May 2011 Fastow was transferred to a halfway house in preparation for his release.
Other sources
A number of books have been written about Enron and Fastow. Prominent among these is Conspiracy of FoolsConspiracy of Fools
Conspiracy of Fools is a book by Kurt Eichenwald detailing the Enron scandal. It was published in 2005 when Eichenwald was a business journalist with The New York Times.- Synopsis :...
(2005) by Kurt Eichenwald
Kurt Eichenwald
Kurt Alexander Eichenwald , an American writer and investigative reporter formerly with The New York Times and later with Condé Nast's business magazine, Portfolio...
which essentially features Fastow as the book's antagonist.
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
John R. Emshwiller
John Robert Emshwiller is a senior national correspondent for the Wall Street Journal.In 2002, he shared the Gerald Loeb Award for his coverage of the unfolding Enron scandal with Rebecca Smith...
. They painted Fastow as in their words "a screamer, who negotiated by intimidation and tirade."
Also in 2003, Bethany McLean
Bethany McLean
Bethany McLean is a contributing editor to Vanity Fair magazine, and known for her work on the Enron scandal and the 2008 financial crisis...
and Peter Elkind wrote the book The Smartest Guys in the Room: The Amazing Rise and Scandalous Fall of Enron ISBN 1591840082. In 2005, the book was made into a film Enron: The Smartest Guys in the Room
Enron: The Smartest Guys in the Room
Enron: The Smartest Guys in the Room is a 2005 documentary film based on the best-selling 2003 book of the same name by Fortune reporters Bethany McLean and Peter Elkind, a study of one of the largest business scandals in American history...
.
External links
- Plea agreement and statement, U.S. vs. Andrew Fastow (January 14, 2004)
- Andrew S. Fastow - Enron Corp., Russ Banham, CFO Magazine, October 1, 1999.
- Fastow indicted on 78 counts, Claire Poole, The Daily Deal, October 31, 2002.
- "How Fastow Helped Enron Fail", TimeTime (magazine)Time is an American news magazine. A European edition is published from London. Time Europe covers the Middle East, Africa and, since 2003, Latin America. An Asian edition is based in Hong Kong...
, February 10, 2002 - Andrew Fastow's political donations
- January 14 2004 plea agreement
- News item: "Lea Fastow enters prison"
- Dart, Bob (2 February 2002). Former CFO Fastow Was Complex Character In Enron Drama. Cox News Service.
- Cam Simpson and Flynn McRoberts (20 January 2002). Architects of Enron's rise bred its demise. Chicago TribuneChicago TribuneThe Chicago Tribune is a major daily newspaper based in Chicago, Illinois, and the flagship publication of the Tribune Company. Formerly self-styled as the "World's Greatest Newspaper" , it remains the most read daily newspaper of the Chicago metropolitan area and the Great Lakes region and is...
. - Do As I Do, Not As I Say Fastow plea deal contradicts the feds' policy