Defense tries to shake Fastow

Skilling's lawyer seeks to discredit star witness as `thief,' `chronic liar'


HOUSTON -- Bent on discrediting Andrew S. Fastow, the government's star witness in the Enron trial, the attorney for former chief executive Jeffrey K. Skilling yesterday called the one-time finance chief a "chronic liar" and a "thief" who agreed to testify to avoid going to jail for life.

In a much-anticipated showdown, Daniel M. Petrocelli peppered Fastow with questions about stealing millions of dollars from Enron and questioned his motive for testifying.

Fastow, in his second day of testimony, continued his assertions that Skilling and co-defendant Kenneth L. Lay, Enron's founder and former chairman, knew of the company's financial troubles and illegal dealings while asserting publicly that all was well.

"It's fair to say you don't want to be blamed for what happened to Enron," Petrocelli told Fastow. "But when the history books are written you know your name is going to be written on that page, and you want Mr. Skilling's name to be written there as well. Isn't that correct?"

Fastow answered that although he did steal from Enron, many members of the company's senior management did the same by inflating earnings and hiding debts to inflate the company stock price and sell shares awarded to high-ranking employees.

"They may not have stolen money in the way I did, but they stole money as well," Fastow said. As for Skilling, Fastow said, "I think we committed crimes together."

Skilling and Lay have been charged with lying about Enron's financial health. Both have pleaded not guilty.

Enron's spectacular fall into bankruptcy in December 2001 led to landmark reforms in corporate accounting and governance. Skilling and Lay were the face of the company during its storied rise in the 1990s.

But after its collapse, Fastow and many other former Enron executives were charged with multiple criminal counts.

In January 2004, Fastow pleaded guilty to two counts, one involving a secret partnership that funneled Enron money to him and close colleagues, and another pertaining to the company's operations. He agreed to a 10-year prison sentence.

Earlier in the day, under questioning from Assistant U.S. Attorney John Hueston, Fastow supported the government's charge that Lay was well aware there were "serious problems" at Enron when he reassumed his position as chief executive in August 2001 after Skilling abruptly resigned.

At a meeting on Aug. 15, 2001, Fastow said he explained to Lay that the company's international operations had lost $5 billion in value, its retail energy business was losing money and it would have to report a $1.2 billion write-down in shareholder equity.

A few days later during a executive meeting to talk about earnings projections for the third quarter, Fastow said he told Lay the company was running roughly $600 million short of the earnings total forecasted by Wall Street analysts.

"There was a big hole in the earnings. We were projecting earnings much lower than what [Wall Street] was expecting from us at that point," he said.

However, in private meetings with investors later that month, and in public pronouncements throughout that fall, Lay repeatedly misrepresented the company's finances, Fastow testified.

In one conference call with analysts, Fastow recalled Lay saying that there "are no accounting issues, trading issues or previously unknown problems at the company."

When asked his reaction to that statement, Fastow said, "most of that statement is false."

Most of yesterday's courtroom activity involved Petrocelli hammering away at the fraud Fastow committed while managing so-called off-balance-sheet entities.

"You must be consumed by insatiable greed?" he asked Fastow, to which Fastow replied, "I believe I was extremely greedy and lost my moral compass."

Petrocelli then responded: "Greed, greed, greed. That's what drove you."

Petrocelli's focus on Fastow's crimes was aimed at countering the government's position that both Skilling and Lay knew the company was masking poor performances.

Petrocelli spent considerable time questioning Fastow's motive for agreeing to cooperate with the government.

He pointed out that if Fastow were seen to be lying in this trial, government prosecutors could ask a federal judge to lengthen his sentence or retry him on the 96 charges that were dropped as part of his agreement to plead guilty.

Petrocelli then turned to Fastow's decision not to testify on behalf of his wife after she was indicted in 2004 on six felony counts related to signing a tax return with her husband that reported millions of dollars illegally obtained from Enron as gifts. Lea W. Fastow, Enron's former assistant treasurer, served a year in prison and was released in July.

"You could have gone in and told the court that you were guilty and spared your wife from ever having to go to prison," Petrocelli said. "But instead, you will do and say anything to protect yourself. Isn't that right?"

"No, sir," Fastow answered.

Among the spectators yesterday was fired HealthSouth chief executive Richard M. Scrushy, who came to hear Fastow's testimony. Scrushy was acquitted last year of charges stemming from a $2.7 billion accounting fraud at the firm he founded.

Scrushy said he was in Houston "on business" - which he declined to explain - and said he decided to visit the trial to hear some of Fastow's testimony.

Leon Lazaroff writes for the Chicago Tribune. The Associated Press contributed to this article.

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