Enron Corp.’s former finance chief says he discussed improper deals with former CEO Jeffrey Skilling that padded earnings to please Wall Street, but he can’t back it up with anything but his memory.
Andrew Fastow, Enron’s ex-chief financial officer and admitted liar, left jurors to decide whether to take his word for it that he conspired with his boss. He said he couldn’t remember any documents that would corroborate his incriminating recollections.
Fastow, 44, who pleaded guilty to scamming the company for millions while orchestrating schemes to hide debt and inflate profits, underwent a second day of intense cross-examination Thursday in the conspiracy and fraud trial of Skilling and Enron founder Kenneth Lay.
Lead Skilling lawyer Daniel Petrocelli finished with him, and lead Lay lawyer Michael Ramsey is slated to question him on Monday.
Fastow has linked both his former bosses to a wide-ranging effort to hide Enron’s wobbly finances from investors, in part by using his partnerships to buy assets and rid the energy company’s books of hundreds of millions of dollars in debt.
Lay has repeatedly pegged Fastow as a crook who betrayed his trust and helped undermine the company, which collapsed into bankruptcy proceedings in December 2001.
Petrocelli worked tirelessly to depict Fastow as a liar, cheat, thief and a bad husband who failed to plead guilty to any of the dozens of counts against him before his wife was indicted in May 2003. Fastow pleaded guilty to two counts of conspiracy in January 2004.
Zeroing in on a copy of Fastow’s handwritten record of profits that were promised to partnerships he created to help Enron wipe debt from its books — dubbed the “Global Galactic” — Petrocelli sought to show the document as meaningless.
Fastow has claimed that Skilling, who was chief operating officer in 1999 when the partnerships were created, made verbal “bear hugs” or promises to him that the partnerships would lose no money on two deals noted on the document.
“We had side agreements, Mr. Petrocelli. That’s how we did business,” Fastow said.
In the deals, a partnership dubbed LJM1 bought an interest in a troubled Brazilian power plant in the third quarter of 2000, and another, called LJM2, bought three power plants mounted on barges off the coast of Nigeria in June of that year.
“I believe I would not have acquired the barges without that bear hug,” Fastow said.
While Fastow said he wrote the Global Galactic to keep track of those deals and others, it carries only his initials and those of Richard Causey, Enron’s former chief accounting officer.
Petrocelli asked whether there was “any piece of paper, any e-mail, any notes written on the back of a business card, anything” that documented the conversations with Skilling.
“I can’t recall any specific document,” Fastow answered.
Petrocelli also tore at the Global Galactic’s authenticity.
First, he noted that even though Fastow said he destroyed the original in the summer of 2001, a copy that Causey refused to keep ended up in an envelope in a safe-deposit box that Fastow and his wife kept at a bank. Fastow said he had no idea how it ended up in a folder holding his Enron employment agreement.
His wife, Lea, found the envelope when she checked the safe-deposit box in April 2004 — the same month that she pleaded guilty to a misdemeanor tax crime for helping Fastow hide ill-gotten gains and that prosecutors dropped six felony counts pending against her.
Fastow said his wife put the envelope on his desk, but he didn’t look inside the folder until about a month later. He immediately gave it to his attorney, who gave it to the government, Fastow said.
Petrocelli also noted an ambitious effort at Enron in early 2000 to sell all of its international assets, including the Brazilian plant and the barges, for $7 billion. The attorney showed an internal Enron memorandum that noted the energy company needed to repurchase those assets from LJM in order to sell them, which would have negated any reason for the side deals. The effort, dubbed Project Summer, never materialized.
“I don’t know what was happening here,” Fastow said. “I did know Enron would take us out.”
“Its origin is suspicious,” Petrocelli said outside of court about the Global Galactic. “It’s not proof of anything against Mr. Skilling.”
Enron ended up repurchasing the Brazilian plant in 2001.
The barges were central in the 2004 convictions at the trial of four former Merrill Lynch & Co. executives and a former midlevel Enron executive. They are serving prison terms for helping push through a sham deal to sell the barges to the brokerage in late 1999 so Enron could appear to have made earnings targets.
Fastow testified Thursday that he promised Merrill Lynch that the brokerage would be bought out at a premium in a verbal side deal. LJM2 came through and bought the barges on schedule at a premium.
“I did that largely based on my understanding that LJM2 would have a similar guarantee from Mr. Skilling that it would be taken out in the future if necessary without a loss and its rate of return,” Fastow said.
But he conceded he didn’t remember telling anyone that he made the deal because of Skilling’s assurances.
Enron sold those barges plus another six to AES Corp. later in 2000.
Skilling, who was CEO for six months until resigning in August 2001, faces 31 counts of fraud, conspiracy, insider trading and lying to auditors. Lay, who resumed his role as CEO after Skilling’s abrupt departure, faces seven counts of fraud and conspiracy.
