The Fastows pleaded guilty on the same day

A deal had been struck between Lea Fastow and federal prosecutors after she had pleaded guilty to a single charge of filing a false tax return.

But the judge refused to go along with a sentence of five months in prison and five months of confinement at home.

Mrs Fastow, a former Enron assistant treasurer, has now pleaded not guilty to the charge.

Her lawyers said they were "embarrassed for the system" after the decision was announced.

Her husband Andrew Fastow, Enron's former chief financial officer had agreed to co-operate following his wife's deal.

Collapse

According to the Justice Department, Lea Fastow helped her husband conceal kickbacks from Enron partnerships which he ran that were not on the main Enron accounts.

Lawyers said Mr Fastow cannot withdraw his guilty plea, which could see him face up to 10 years in prison.

"His plea stands and he is still required to co-operate," said Andrew Weissmann, head of the Justice Department's Enron Task Force.

Mr Fastow was indicted on 78 charges of money laundering, fraud, conspiracy and obstruction of justice.

Enron collapsed in autumn 2001 after the company was forced to admit that it vastly overstated the value of its assets and profits and hid billions of dollars of debt.

The company is being "restructured" and says it hopes to emerge from bankruptcy as a "viable, albeit smaller company". Some parts of it are being sold off.