Andy Fastow has two props he uses in speeches to explain how he ended up as one of the country’s most famous corporate criminals.
First, he holds up the trophy he received when he was named “CFO of the Year” in 2000 for his work at Enron Corp. Then he holds up the federal prison ID card he was issued when he served nearly six years for wire and securities fraud.
“I got both of these for doing the same deals,” Fastow told a roomful of business students at Texas Christian University on Tuesday. “How is it possible to be CFO of the Year and commit the greatest fraud in American history doing the same deals?”
To Fastow, it comes down to one word: loopholes.
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While serving as Enron’s chief financial officer from 1998 to 2001, Fastow created a web of off-balance-sheet entities that turned the Houston pipeline company into what seemed like a highly profitable trading powerhouse. But in a span of four months in 2001, Enron went from near the top of the Fortune 500 to bankruptcy, spawning investigations that led to criminal charges for its top executives.
There’s only one reason I’m here, because I went to prison. That’s my distinction, and it is a terrible distinction to have
Andy Fastow, former Enron CFO
The government showed that Enron executives had used accounting tricks to hide billions in debt and enrich themselves. In 2004, Fastow pled guilty to two counts of fraud and was sentenced to six years in prison after agreeing to cooperate with prosecutors.
Fastow was released from prison in 2011, while former Enron CEO Jeff Skilling remains locked up, serving a 24-year sentence.
Fastow, 55, takes responsibility for his crimes, though he says it never crossed his mind at the time that he might be committing fraud.
“What I did was wrong, what I did was unethical, it was illegal,” Fastow said. “I intentionally misrepresented Enron’s financial condition and, as a result of that, I caused a lot of harm. I take full responsibility for that, and I’m very sorry for that.”
But, he said, all of his deals were approved by a bevy of gatekeepers: Enron’s accountants, outside auditors, attorneys and the board of directors, and no information was withheld.
While the financial maneuvers technically followed the rules, the overall scheme was intended to mislead investors, he said. By keeping billions in debt off Enron’s books, Fastow says he transformed the appearance of Enron’s financials so much that it received an investment grade rating when his own evaluation showed it should have been rated as junk.
Accounting and tax rules and securities law are not black and white, Fastow said. but rather full of gray areas. “They’re very complex, ambiguous, sometimes nonsensical, sometimes non-existent,” he said.
Using loopholes to your advantage, he contends, is part of American society, a common practice both in business and politics. He urged the students to ask themselves what is right, not just what can be approved.
“The intent was to technically follow the rule, but the intent was to also be materially misleading,” Fastow said. “When is that a good thing, and when is that a problem? That’s the question, and you will be confronted by that question.”
Ed Ireland, an associate professor at TCU’s Neeley School of Business and a former energy industry executive, said he invited Fastow to show students that “there’s a thin line between ethical and unethical behavior.”
In recent years, Fastow has been invited to share his message on many campuses including Harvard, Stanford, Rice and the University of Texas, as well as to groups of fraud examiners and FBI investigators.
“I’m always surprised when I’m invited to talk about business ethics. I think that’s like inviting Kim Kardashian to lecture high school girls about chastity,” he joked.
“There’s only one reason I’m here — because I went to prison,” he added. “That’s my distinction, and it is a terrible distinction to have. I’m ashamed of it every day.”