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TheStreet Open House

Lea Fastow Plea Deal Tossed

Updated from 12:32 p.m. EDT

A federal judge rocked the Enron criminal prosecution Wednesday by rejecting a plea deal with Lea Fastow, the wife of the bankrupt energy company's former chief financial officer, Andrew Fastow.

In a surprising twist, U.S. District Judge David Hittner said he would not accept the plea arrangement that prosecutors had negotiated with Fastow's wife. The move prompted Fastow to withdraw her guilty plea, and the judge immediately scheduled a June trial in the case.

The plea agreement, which had Fastow serving five months in a federal prison and another five months under home detention, had been critical in getting Fastow's husband to plead guilty and agree to cooperate with prosecutors in the Enron fraud investigation. Fastow's subsequent cooperation led to the indictment of former Enron CEO Jeffrey Skilling and former Enron chief accounting officer Richard Causey.

Federal prosecutors were quick to say that the turmoil in Lea Fastow's case will not impact her husband's plea.

"The plea and cooperation agreement reached with Lea Fastow's husband, former Enron chief financial officer Andrew Fastow, is not affected by today's rulings," says Assistant Attorney General Christopher Wray.

Gordon Andrews, a spokesman for Andrew Fastow, declined to comment on the plea deal snafu. A spokesman for the Department of Justice could not be reached for comment. Skilling's lawyer, Bruce Hiler, was also unavailable.

Philip Hilder, a former federal prosecutor and the attorney would-be Enron whistleblower Sherron Watkins, said the rejection of the plea is not good news for either Ms. Fastow or the prosecution. If convicted at trial, she could be sentenced to many years in jail. A trial also diverts the prosecution's attention away from the bigger case, which is prosecuting Skilling.

"It allows the defense to get a snapshot of the prosecution's case," Hilder says. "The prosecutions efforts are now diverted from the major battle that is looming with Mr. Skilling to this skirmish."

The plea deal with Fastow's wife had taken many months to negotiate. When Fastow appeared in court on Wednesday, it had been widely expected the judge would accept the agreement.

Judge Hittner, according to news wire reports, said during the proceeding that the "court declines to voluntarily limit its role in sentencing." Earlier objections by the judge to the terms of Lea Fastow's plea deal had complicated the negotiations with prosecutors.

Stephen Ryan, a former prosecutor and a partner with Manatt, Phelps & Phillips, described the events surrounding Ms. Fastow as the "plea from hell." He says the case against her always was a "subsidiary" issue to the Enron investigation.

Speaking outside the courtroom, Michael Deguerin, the attorney for Lea Fastow, said: "The agreement to plead guilty and to resolve all these matters at once included an agreed sentence that was more harsh than most people in Mrs. Fastow's position would've obtained in other courts, but it resolved a lot of matters."

The plea deal with Lea Fastow was critical to getting her husband to plead guilty, because it meant the Fastows' young children would have at least one parent at home while they were serving time in jail.

As part of the original deal, she pleaded guilty in January to one count of filing a false tax report. The charge stems from allegations that she tried to hide income from some of the deals her husband had engineered with several of Enron's off-balance sheet entities.

Andrew Fastow, the mastermind of the off-balance-sheet partnerships at the heart of Enron's sprawling fraud, is scheduled to be sentenced to serve up to 10 years in prison.

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