Former Enron finance chief Andrew Fastow on Tuesday offered potentially damaging testimony against his former boss, Jeffrey Skilling, as the trial of the energy firm’s two highest-ranking executives reached a critical stage.
He also broke down at one point while recounting the events that led to his wife, Lea, being sent to prison for a year.
Fastow (44) was speaking publicly for the first time since pleading guilty to fraud charges in January 2004, offering a rare first-hand glimpse of what went on behind closed doors at one of the most notorious corporate collapses in history.
He told jurors in a Houston court that Skilling had urged him to ”get me as much of that juice as you can” when he had proposed setting up a second secretive off-balance-sheet entity to help hide Enron’s debts and inflate profits. Asked by the prosecution what that meant, Fastow said: ”Juice the earnings so we could report the numbers we wanted to report.”
Enron, once the United States’ seventh-largest firm, filed for bankruptcy in 2001, leaving thousands out of work and investors facing billions of dollars of losses.
Fastow is a key government witness against Skilling and Kenneth Lay, who both held the chief executive job at Enron. The pair face dozens of charges of conspiracy, fraud and insider trading in a trial that has already lasted five weeks.
Dressed in a grey suit, checked tie and white shirt, and speaking in a southern drawl punctured by a whistle on every ”s”, Fastow described how the company had set up its off-balance-sheet entities — subsidiary companies not shown on the balance sheet. The first, called LJM1, was set up in 1999 to help Enron ”solve a problem” — that it was facing possible losses on a small investment.
Fastow said he had broken the Enron code of conduct by running the off-balance-sheet partnerships and exposing himself to conflicts of interest. But he said his dual role had been approved by the office of the chairperson.
He detailed some of the deals made through LJM2, a second vehicle. In one case it bought a Polish power plant from Enron to allow it to book the profits in the final quarter of 1999 and meet its earnings targets. He catalogued the deals in what he called a ”global galactic list”, initialled by Enron’s chief accounting officer Richard Causey. Fastow said Causey had shown the list to Skilling. Causey has also pleaded guilty to fraud.
Fastow recalled board meetings where the vehicles’ risks were discussed. He said Skilling was concerned how much about LJM2 should be disclosed to analysts ”because it would attract attention, and if dissected, people would see what the purpose of the partnership was, which was to mask potentially hundreds of millions of dollars of losses”.
”The biggest risk was the Wall Street Journal risk,” he said. ”The risk that it got picked up … It would look terrible and bring Enron under a lot of scrutiny.”
The defence hopes to prove that any criminal activity at Enron was limited to Fastow. He has been labelled a liar and a thief by the defence. It contends that Fastow is pointing the finger at his former bosses in return for a relatively light sentence — he will serve 10 years. Asked on Tuesday why he had pleaded guilty, he replied: ”I pleaded guilty because I am guilty and I felt the decision would be in the best interests of my family.”
As part of its case the prosecution went on to relate how Fastow used his family in the subterfuge, with cheques made out to his wife and son used to receive proceeds from one of his off-balance-sheet vehicles. In one of these cases Fastow said he received money but told his wife it was a gift and could be reported as such on their income tax return. Lea Fastow was subsequently jailed for a year for filing a false return. Fastow became tearful and said: ”She did not conspire, I conspired.”
The trial continues on Wednesday. – Guardian Unlimited Â