Fastow Charged With Mail Fraud, Money Laundering

Prosecutors typically have 30 days after filing a criminal complaint to either formally indict a person or dismiss the charges. It's during that 30-day window that prosecutors will often try to extract, if possible, a plea deal from a defendant.

Kopper, meanwhile, assisted Fastow in running both LJM partnerships. The LJM2 partnership, which at one time had $394 million in assets, attracted a Who's Who of Wall Street investors including Merrill, J.P. Morgan Chase(JPM Quote), Citigroup(C Quote)and Credit Suisse First Boston. Merrill was retained by Fastow to help lineup investors for LJM2.

At this time, it's not known whether the SEC and Justice Department intend to pursue charges against Merrill or its former bankers. Merrill has insisted that it did nothing wrong in it's dealings with Enron.

Merrill disputed the government's allegation, saying that its investment was "fully at risk" and that the firm "did not receive any guarantee that Enron or any other entity would purchase our investment."

The role of the Wall Street banks in helping to finance Enron's many deals has been controversial.

Indeed, the prosecutors' contention that Fastow and Enron officials had entered into secret agreements to guarantee a high rate of return to Enron could focus renewed attention on some of LJM2's 52 limited partners -- since many of them helped finance and arrange Enron's off-balance sheet deals. One of the lures Merrill and Fastow used to reel in investors, including the Wall Street firms, was a prediction that LJM2 would generate an annual return of 30% or greater on their investments.

The LJM2 partnership filed for bankruptcy last week, after reporting that it had $68 million in assets and $125 million in liabilities. Most of LJM2's investments became worthless when Enron filed for bankruptcy last December.

Fastow reportedly made $30 million in management fees from overseeing the operations of both LJM partnerships. Prosecutors and the SEC are seeking to recoup the "ill-gotten" gains they claim Fastow derived from his various schemes.

Also, three former NatWestminster bankers -- now a part of the Royal Bank of Scotland -- have been indicted for defrauding their former employer of some $9 million in a deal involving Kopper, Fastow and the LJM1 partnership. Both CSFB and NatWest were the original outside investors in LJM1.

Much of the criminal case against Fastow seems to build off the findings of report written earlier this by William Powers, dean of the University of Texas School of Law, who headed a special committe of Enron's board that investigated some of the company's off-balance sheet transactions.

Although the Powers report didn't conclude whether laws were broken at Enron, it found that of the company's off-balance sheet transactions flouted accepted accounting principals and in many instances served no rational economic purpose. The report was particularly critical of many the deals that Enron engaged in with Fastow's LJM partnerships.