Image: Andrew Fastow enters court
Richard Carson  /  Reuters
U.S. Marshals lead former Enron chief financial officer Andrew Fastow and his attorney David Gerger, back left, into court Monday.
updated 3/13/2006 7:08:50 PM ET 2006-03-14T00:08:50

Not only did a lawyer for Enron Corp. founder Kenneth Lay jab at former finance chief Andrew Fastow’s credibility Monday. He also challenged Fastow’s hearing problem.

“You really can’t hear me?” attorney Michael Ramsey demanded loudly, leaning toward Fastow from a podium next to jurors in the fraud and conspiracy trial of Lay and former Enron Chief Executive Officer Jeffrey Skilling.

Leaning back slightly and eyebrows raised, Fastow replied calmly, “Yes. Feel free to ask your client — I really do have a hearing problem.”

The heated exchange came seconds after Ramsey yelled, “Make a speech!” after asking questions related to partnerships Fastow said he created to buy weak Enron assets and help the energy company manipulate earnings.

A few jurors looked taken aback at the tone following what had been a more methodical cross-examination of the admitted liar and thief who was verbally pummeled last week by Skilling’s lead lawyer, Daniel Petrocelli.

Both cross-examinations marked the first time Fastow, 44, has had to succumb to aggressive public questioning about his crimes. He pleaded guilty in January 2004 to two counts of conspiracy for orchestrating schemes to help Enron hide debt and inflate profits while skimming millions for himself on the side. As part of his plea, he agreed to serve the maximum 10-year prison term, and is slated to be sentenced in June.

His fourth day on the witness stand Monday, and third under cross-examination, was his last as both sides finished with Fastow at day’s end.

Prosecutors said Monday that later this week, jurors would hear from Vince Kaminski, former head of Enron’s risk research arm and a vocal critic of Fastow’s partnerships; and Sherron Watkins, who gained fame in early 2002 for her efforts to warn Lay of impending financial doom in a meeting with the company founder days after Skilling abruptly resigned in August 2001. Watkins co-wrote a 2003 book about Enron and has been a popular speaker regarding the company’s 2001 descent into bankruptcy proceedings.

On Tuesday Chris Loehr, one of Fastow’s former employees at the LJM partnerships, was slated to testify.

On Monday, Ramsey didn’t mirror Petrocelli’s relentless attack that forced Fastow to admit he was a greed-driven liar and cheat who roped his wife into his crimes and watched her serve a year in prison.

But he elicited Fastow’s admission that he lied to Lay about his loyalty to Enron, and sought to show the ex-chief financial officer exaggerated the financial problems the company faced in 2001.

Ramsey grilled Fastow about an Aug. 15, 2001, meeting with Lay — a meeting the day after Skilling resigned after six months as CEO — in which Fastow says he stressed that he was loyal to Enron and would stay on as finance chief. Fastow had acknowledged that neither Skilling nor Lay knew he had stolen millions from Enron through myriad schemes over several years.

“In connection with stealing from Enron,” Ramsey asked, “you were just looking Mr. Lay in the face and telling him a lie?”

“Yes, I was not loyal to him or Enron when I committed those crimes,” Fastow said.

“You’re sorry to the core, aren’t you?” Ramsey asked, sarcastically.

“I’m ashamed to the core,” Fastow replied. “I have destroyed my life. And yes, sir, I am sorry to the core.”

Last week Fastow testified that he gave Lay a rundown of huge looming write-offs because of overvalued international assets and a massive accounting error that would force a $1.2 billion writedown in shareholder equity. Yet he said Lay misled investors and employees by failing to disclose the enormity of Enron’s problems.

Ramsey sought to suggest that Lay was more forthcoming.

In an Aug. 16, 2001, meeting with employees Lay acknowledged that Enron had billions locked up in some international assets that were “earning almost no income,” and that it was “imperative” to squeeze better returns.

Ramsey also challenged Fastow’s account of a meeting the ex-CFO said he had with Lay and executives from brokerage firm Goldman Sachs & Co. to discuss a restructuring of Enron in late 2001 — all while Lay was insisting publicly that Enron was fundamentally sound.

Fastow testified last week he chose Goldman because it was not a major Enron lender, and he feared those cash and credit providers would balk if they learned how weak Enron’s finances were.

But Ramsey noted to Fastow on Monday that Goldman was Enron’s primary source of so-called commercial paper, or crucial short-term debt that companies use to cover daily operation costs.

“Didn’t it just cross your mind a little bit that if we tell our major commercial-paper broker our secrets the paper is gonna dry up overnight?” Ramsey asked.

“That’s not what I was thinking, sir,” Fastow answered.

Prosecutors contend Lay and Skilling repeatedly lied about Enron’s financial health when they knew Fastow’s partnerships and other accounting tricks propped up the company. The defense maintains negative publicity, shattered market confidence and an overall bear market — not overarching fraud — forced Enron to seek bankruptcy protection in 2001.

Earlier Monday Petrocelli questioned the authenticity of a document that Fastow contends showed improper deals to hide losses at the company, which were approved by Skilling.

Fastow said he created the so-called Global Galactic list to keep track of Enron’s assurances that LJM partnerships he ran would not lose money on deals with the company. Prosecutors contend the partnerships bought weak assets from Enron with secret promises to resell or buy them back so the energy company could manufacture earnings when needed

Only Fastow and former Enron Chief Accounting Officer Richard Causey initialed the list. Fastow testified last week that Skilling personally approved some of the side deals in conversations with Fastow — that the ex-CFO didn’t document — and Causey assured him Skilling had approved the rest.

Petrocelli suggested Fastow may have reconstructed the list when discussing a plea deal with prosecutors, and asked if Fastow was “100 percent certain” that the initials on the document belonged to him and the former top accountant. Causey pleaded guilty to securities fraud last December, and may testify.

“I recall being there when Mr. Causey initialed them, seeing him do that,” Fastow said.

Prosecutor John Hueston asked why, if Fastow intended for Skilling to be convicted, the ex-CFO didn’t throw Skilling’s initials in the mix on the document.

“Sir, I have no incentive to add any initials,” Fastow said.

Petrocelli also showed jurors notes Fastow took of phone conversations with Skilling in October 2001, including one in which Skilling called Fastow “brilliant” and said shareholders “should give us medals for doing all these deals.”

BREAK

A lawyer for Enron Corp. founder Kenneth Lay assailed a key prosecution witness Monday as a skillful liar who exaggerated the financial peril the company faced in 2001.

Lawyer Michael Ramsey also played tapes for jurors in which Lay, just after taking the reins as Enron chief executive in August 2001, flatly told employees that some of the company’s overseas assets were “generating a very, very low return on investment.”

Ramsey aggressively challenged the credibility of Andrew Fastow, the former chief financial officer at Enron, who testified last week that Lay was well aware of the dire straits faced by the company, even as he talked it up to employees and the public.

The defense lawyer grilled Fastow about an Aug. 15, 2001, meeting with Lay in which Fastow says he stressed to the CEO that he was loyal to Enron and planned to stay on as finance chief.

“In connection with stealing from Enron,” Ramsey asked, “you were just looking Mr. Lay in the face and telling him a lie?”

Fastow has admitted stealing millions of dollars from Enron for himself, partners and a family foundation through a string of schemes he hid from his bosses.

“Yes, I was not loyal to him or Enron when I committed those crimes,” Fastow said.

Fastow underwent a fourth and final day of questioning — and his third of cross-examination — in the trial of Lay and former Enron Chief Executive Jeffrey Skilling, who face fraud, conspiracy and other charges in the spectacular collapse of the energy trading company.

Fastow has agreed to serve 10 years in prison after pleading guilty to two counts of conspiracy. The government can still prosecute him on 96 criminal counts if they are unsatisfied with his cooperation against Lay and Skilling.

Echoing a theme he sounded throughout his cross-examination, Fastow said he was “ashamed to the core” by the crimes he committed, and he insisted he was in court only to tell the truth — not to put Skilling or Lay away.

The ex-CFO testified last week he gave Lay a rundown of huge looming write-offs because of overvalued international assets and a massive accounting error that would force a $1.2 billion writedown in shareholder equity.

He also said he and Lay met with executives from brokerage firm Goldman Sachs & Co. to discuss a restructuring of Enron in late 2001 — all while Lay was insisting to employees and reporters that Enron was fundamentally sound.

Ramsey challenged Fastow’s account of the Goldman meeting.

Fastow said he chose Goldman because it was not one of Enron’s major lenders — and therefore could not pull its credit out from under the company when it learned how bad the finances were.

But Ramsey noted to Fastow that Goldman was Enron’s primary issuer of so-called commercial paper, or crucial short-term debt.

The defense lawyer asked: “Didn’t it just cross your mind a little bit that if we tell our major commercial-paper broker our secrets the paper is gonna dry up overnight?”

“That’s not what I was thinking, sir,” Fastow answered.

Monday’s questioning featured several colorful exchanges. Ramsey accused Fastow once of “lying like a dog” for years at Enron, and when Fastow tried to answer a later question by making two points, the defense lawyer snapped: “Make a speech if you want to.”

Fastow, who repeatedly has asked lawyers to speak up, indicated he did not hear the defense lawyer. “You really can’t hear me?” an agitated Ramsey asked. “Feel free to ask your client — I do have a hearing problem,” Fastow said.

When prosecutors questioned Fastow last week, they keyed on interviews Lay gave in 2001 and statements he made to employees at the time insisting Enron had a strong balance sheet.

But Ramsey appeared to suggest Monday that Lay came clean about the more troubled parts of the business.

In an Aug. 16, 2001, meeting with employees, for example, Lay acknowledged Enron had billions locked up in some international assets that were “earning almost no income,” and that it was “imperative” to milk a better return out of those assets.

The defense maintains it was negative publicity, shattered market confidence and an overall bear market — not overarching fraud — that forced Enron to seek bankruptcy protection in 2001.

Earlier Monday, a lawyer for Skilling questioned the authenticity of a document that Fastow contends showed improper deals to hide losses at the company that were approved by Skilling.

Fastow said he created the document, a list dubbed Global Galactic, to keep track of Enron’s assurances that partnerships he ran would not lose money on deals with the company.

Fastow has said he destroyed the original document but a copy turned up in 2004, tucked into a folder in a safe-deposit box maintained by Fastow and his wife.

“Is there some possibility, sir, that later on, having perhaps lost or tossed out the original, you went back and recreated or reconstructed the list?” Skilling lawyer Daniel Petrocelli asked Monday.

“No, sir,” Fastow answered.

Petrocelli also asked Fastow whether he was “100 percent certain” that the initials on the document belonged to him and Richard Causey, the former top accountant at Enron.

“I recall being there when Mr. Causey initialed them, seeing him do that,” Fastow said.

Fastow testified last week that Skilling personally approved some of the side deals, and that Causey assured him Skilling had approved all the deals on the Global Galactic list. Fastow has conceded he has no hard evidence of those meetings with Skilling.

The government claims the deals with Fastow’s partnerships, known as LJMs, allowed Enron to shed poorly performing assets and improve the bottom line — with secret promises to LJM that Enron would buy them back at a premium.

Petrocelli also showed jurors notes Fastow took of phone conversations with Skilling in October 2001, including one in which Skilling called Fastow “brilliant” and said shareholders “should give us medals for doing all these deals.”

On Tuesday, jurors are expected to hear from Chris Loehr, one of Fastow’s employees at the LJM partnerships. Prosecutors said Sherron Watkins, the Enron executive who sent Lay a memo months before the company’s fall warning that Fastow’s accounting schemes could wreck it, should testify this week as well.

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