Enron's Fastow may testify today

Can key witness link his fraudulent deals to bosses Lay and Skilling?

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March 07, 2006|By LEON LAZAROFF | LEON LAZAROFF,CHICAGO TRIBUNE

He was the architect behind a multibillion-dollar fraud. His youthful face concealed a brutish, obsessive desire to occupy a corner office, enter high society and become very rich.

Now he is the government's star witness.

If there is a smoking gun in the trial of Enron's top two former executives, the energy company's one-time finance chief Andrew S. Fastow may be the one to produce it.

The rapid and stunning collapse of Enron in late 2001 has come to represent the latest wave of corporate corruption cases and a perversion of managerial culture. It's a story already recounted in books and movies.

With Fastow's expected appearance today at the Houston trial of Kenneth L. Lay and Jeffrey K. Skilling, the jury will have its first chance to decide whether the hard-charging financial whiz-kid engineered fraud on his own or executed it with the approval of his two principal superiors.

"Prosecutors will say Fastow acted with the knowledge of Skilling and Lay, that they gave him a wink and a nod," said Philip H. Hilder, a criminal defense lawyer and former Houston director of the Justice Department's Organized Crime Strike Force.

"The defense will counter that he was a rogue employee who feathered his own nest and had they known what he was up to, they wouldn't have tolerated it."

One point that neither side disputes is that Fastow was integral to the fraud, and in the process illegally funneled millions of dollars to himself, his wife, Lea W. Fastow, and close associates.

The question at the heart of the prosecution's case is whether Skilling, Enron's former chief executive, and Lay, its one-time chairman, approved the complex financial maneuvering as part of a conspiracy to pump up the company's share price to enrich themselves through lucrative stock options. Both men are charged with a variety of counts including conspiracy and fraud.

Fastow, 44, pleaded guilty in January 2004 to two criminal charges involving securities fraud and conspiracy to commit wire fraud. By agreeing to cooperate with the government's Enron task force, Fastow avoided going to trial and has agreed to accept a 10-year prison sentence.

Fastow's wife Lea, who worked in Enron's treasury unit, completed a one-year prison sentence in July, having pleaded guilty to a misdemeanor tax charge for concealing improper income as if it was gifts of less than $10,000.

Fastow owed his ascent to Enron's top ranks to Skilling, who lured him away from the Chicago office of Continental Bank in 1990. A graduate of Northwestern's Kellogg School of Management, Fastow came to Enron with his wife Lea Weingarten, a member of a wealthy Houston family. The two had met in college at Tufts University in Medford, Mass. While Lea landed a spot in Enron's treasury department, Fastow, then 28, became a finance manager specializing in securitization.

Shortly after Skilling was made the company's president and chief operating officer, Fastow was promoted in 1997 to head a reorganized finance department. A year later, he was named chief financial officer.

Unlike most corporate finance chiefs who hold an advanced degree in accounting, Fastow held a master's degree in business. But Fastow, like Skilling, viewed the office not simply as a monitor of money spent and money earned but as a revenue generator.

In dealings with Wall Street, Fastow has been characterized as unafraid to threaten to cut out an investment bank from trading fees if it chose not to participate in one of Enron's off-balance sheet partnerships. Similarly, Fastow used tough, even bullying, tactics to force the removal of auditors and outside lawyers who objected to how the partnerships were structured.

"From everything I understood he was pretty ruthless and feared within the company," Hilder said.

Fastow's appearance follows testimony from David W. Delainey, former head of Enron Energy Services retail division, who directly implicated Skilling in the fraud.

Delainey told how at a March 2001 meeting that included Skilling, it was decided to hide more than $200 million losses to sustain the impression that the company was healthy and growing. Delainey later pleaded guilty to insider trading and agreed to testify for the prosecution.

Building on Delainey's accusation, Fastow is expected to assert that either Skilling or Lay or both men were well aware that the series of "off-balance sheet" partnerships he created and managed violated federal accounting rules.

Using colorful names such as Chewco and Raptors, the partnerships served mostly to park unprofitable assets or market losses so that Enron could close the gap between its actual business performance and Wall Street expectations.

Regardless of what Fastow tells prosecutors, he can expect to be thoroughly grilled by defense attorneys eager to question his motive for agreeing to cooperate with the government. Daniel M. Petrocelli, Skilling's lead attorney, and Michael Ramsey, Lay's main lawyer, also are likely to attack Fastow's character, showing that he enriched himself by millions of dollars by managing the partnerships.

In his opening statement, Ramsey referred to Fastow as "pitiful man" and "a lost creature."

In the course of pleading guilty, the Fastows agreed to forfeit about $23 million and homes in Galveston, Texas, and Vermont.

Leon Lazaroff writes for the Chicago Tribune.

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