Bloomberg reports that Giles Darby, David Bermingham and Gary Mulgrew, three British former bankers who pleaded guilty in a “$20 million Enron Corp.-related fraud” – were each ordered to surrender to prison during the next three weeks.
Those quotation marks are mine. It is not true that it was “Enron related” fraud – if there was any fraud, then Enron was the victim of the fraud. The allegation is that the NatWest Three conspired with Andy Fastow to skim millions from a deal with Enron.
Background on the alleged fraud
The deal with Enron which is in question involves Swap Sub – the hedging structure that was originally in place to protect Enron against a decline in Rhythms Net stock. Enron had an option to force Swap Sub to buy Enron’s investment in Rhythms for a predetermined amount (I believe it was $41 per share) in the year 2004.
In March 2000, Enron terminated the hedging arrangement with Swap Sub. As the hedge was being unwound, Andy Fastow offered to buy NatWest’s share of the investment (NatWest, Credit Suisse and Andy Fastow’s LJM were the investors.) Fastow created Southampton in order to buy the interest. After the NatWest interest was bought out, Andy Fastow then sold the bankers a personal put option on NatWest’s interest. One of the bankers exercised his option and made a profit of about 7 million dollars, which he split with the others.
If there was a crime in all this, it wasn’t evidenced from their eventual plea agreement: one count of wire fraud. They were then sentenced to 37 months in prison.
The men will serve their time in different federal prisons, according to orders signed yesterday by U.S. District Judge Ewing Werlein in Houston. Gary Mulgrew was ordered to surrender to the facility in Big Spring, Texas, on April 30*; Giles Darby to the Allenwood facility in White Deer, Pennsylvania, on May 7; and David Bermingham to the prison in Lompoc, California, on May 9.
This is just absurd.
*Mr. Mulgrew will be housed in the same prison as Michael Kopper, Andy Fastow’s assistant and one of the people with whom the NatWest Three did the original Swap Sub deal.