Defense Blasts Fastow’s Enron Trial Testimony
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RAY SUAREZ: Andrew Fastow, the government’s star witness in the trial of former Enron executives Ken Lay and Jeffrey Skilling, spent a third day on the witness stand today, as defense attorneys continued their cross-examination of the former chief financial officer.
Yesterday, Fastow testified that, in 2001, then CEO Lay knew about Enron’s dire financial situation when he gave positive reports about the company to the public.
Fastow has also implicated former CEO Skilling in the operation of off-the-books companies to hide Enron losses before the company’s 2001 crash.
Here to discuss the latest in the ongoing trial is Tom Fowler of The Houston Chronicle.
And, Tom, another tough day in the witness chair for Andrew Fastow?
TOM FOWLER, The Houston Chronicle: This is true.
He’s still under cross-examination by Daniel Petrocelli. This is Jeff Skilling’s lead attorney. It has been not quite as exciting as yesterday, but, today, a lot more of the sort of hammering away at just re-emphasizing a lot of the deals that Fastow did over the years that enriched himself, and were pretty clearly illegal, in terms of having manipulated the company’s earnings as well.
RAY SUAREZ A lot of the testimony today centered around something called Global Galactic. What was that?
TOM FOWLER Well, Global Galactic was originally this handwritten document between — ostensibly, it’s between Fastow and Richard Causey.
He’s the former chief accounting officer, who was slated to go to trial with Lay and Skilling, but he pled out in December. And, basically, it outlined a lot of these side deals between the partnerships that Fastow ran — these are the LJM partnerships, LJM 1 and 2, and Enron.
And they basically — the — the crux of them was that LJM wouldn’t lose any money when they invested in these — in these transactions. For instance, there is this power plant deal, Cuiaba, in Brazil. Fastow didn’t want to invest in it originally. But they had this side deal that basically said LJM won’t lose money on it. You will — you know, Enron will make sure you are good. We will buy it back for you at a profit.
So, that’s — it’s — was seen initially as a smoking gun of sorts. It would have been, if there was just — if Causey was still in the trial.
RAY SUAREZ Does Fastow say that Skilling and Lay knew about this deal?
TOM FOWLER At least Skilling. He definitely says that Skilling was aware of these.
He — as a matter of fact, he says that Skilling made a lot of these verbal promises, promises verbally that are outlined in this handwritten document.
Cuiaba, he said that Skilling promised him, you know, you will be made good on this. Don’t worry. This is a deal, the Nigerian barge deal, that he said he gave him a bear hug, essentially, meaning that he promised him, you know, you will be made good on this as well. You are not going to lose money.
So, while Skilling’s name isn’t actually on this document, he didn’t sign it, he says that he was well aware of it, and that Causey actually brought this handwritten document to him, and — and got the OK for it.
RAY SUAREZ Now, with all the concentration on what Jeffrey Skilling knew, where does Ken Lay stand in all of this? Has Fastow been able to attach any of these off-the-books companies or hiding the massive losses to Ken Lay?
TOM FOWLER Yes, he’s — not quite as much as Skilling. Clearly, there is a lot more charges in this case against Skilling than Lay.
But a lot — one of the things that he has been doing is, there has been a couple of discussions he has had with Lay that — that, on their face, seem pretty damning. There’s a — right after Skilling left, in August 2001, Fastow talked about having a sit-down meeting with — with Lay, where he actually brought a presentation, showing that the company had about $10 billion in assets.
These are power plants, pipelines, other transactions, that were probably worth closer to less than $5 billion. And he also showed him how — there was about a $1.2 billion accounting error that they were going to have to report really soon. He basically showed him this — on paper, this very dire situation the company faced, and even suggested maybe it is time we bring in Goldman Sachs to help us do something, a — a massive restructuring, maybe finding somebody to buy us out.
And then it’s — in the weeks after that, that the indictment, the charges against Lay talk about him then going to analysts and to the employees and talking very positively about, you know, the company’s in great shape. Our, you know, debt is — you know, debt, it’s not a problem, basically saying the company is as strong as it ever was.
And, so, that is pretty damning right there, I believe. At least it looks — it looks bad, initially.
RAY SUAREZ Has the Lay defense team had to come back or feel — felt it had to come back at Fastow in the ferocious way that Petrocelli has on behalf of Skilling?
TOM FOWLER Well, they haven’t had an opportunity yet. Petrocelli is probably — they are actually still on the stand right now, I believe.
Petrocelli is going to have him until — it looks like well into Monday, as a matter of fact. The trial doesn’t meet on Fridays. So, Lay’s team doesn’t really get a crack at him until maybe Monday, possibly even Tuesday. It is hard to say.
RAY SUAREZ Has Petrocelli been able to neutralize some of these tough stories about his client, Jeffrey Skilling, for instance, getting Fastow to concede things that he might not have wanted to?
TOM FOWLER That’s hard to say. It’s — it’s hard to predict what a — what the jury actually sees.
When Petrocelli started his cross of — of Fastow the other day — yesterday — he started immediately by hammering on this situation with Mr. Fastow’s wife. Lea Fastow actually served a year in jail for — after she pled guilty to filing a false tax return. And this was related to one of the side deals that — that Mr. Fastow was involved in.
And, essentially, he hammered on the fact — he was trying to insinuate that Mr. Fastow could have kept his wife from going to jail if he had fessed up a lot earlier, and — and basically was trying to paint him as somebody that was, you know, willing to save himself, at the expense of his wife.
That was something that came out in the government’s direct examination already. So, trying to discredit him on that, trying to show that he is really an — an awful person, it’s hard to say how effective that was, because I think the government made that case pretty clear themselves.
He has been doing a lot of things. He’s — they have been emphasizing the fact that there really isn’t a Lay or Skilling handwriting actually on any document, saying, you know, this — you know, go ahead and — and fool the investors this way; go ahead and pump up the earnings.
There is really no — very little paper trail that — that Fastow has testified to so far.
RAY SUAREZ And, from Fastow’s own story, didn’t he mention that a lot of this was done verbally, done in rooms where no one else was present, that kind of thing, so it becomes a…
TOM FOWLER Oh…
RAY SUAREZ … a one-word-against-the-other kind of thing?
TOM FOWLER Yes. And this is really in — with a lot of the testimony, we have had a — an awful lot of former executives who have — who have plea agreements with the government, who have come in. And, basically, they have been saying, yes, I was in a meeting with Mr. Skilling, Mr. Fastow. And we talked — we discussed this — this transaction, and they said, OK, go ahead and do it, or they wouldn’t comment — they didn’t comment, but, you know, the impression was, yes, it’s OK to do this.
So, that — that is a lot of it. It’s — a lot of it is, basically, very much verbal kind of agreements that have been going on. And — and that makes sense. If you are going to be pulling off something like this, it is not as though you are going to, ideally, leave a — a large paper trail like that.
RAY SUAREZ Tom Fowler of “The Houston Chronicle,” thanks for being with us.
TOM FOWLER Thank you, Ray.