Former Enron Corp. finance chief Andrew Fastow isn’t a defendant or a prosecution witness in the first criminal trial to emerge from the energy company’s crash, but he could be called to testify.
Attorneys for four former Merrill Lynch & Co. executives and two former midlevel Enron executives could call Fastow — a cooperating government witness — in the conspiracy and fraud trial regarding an alleged sham sale of several barges to the brokerage in 1999.
Prosecutors say Enron desperately needed the barge deal to book a critical $12 million pretax fourth-quarter profit, but Merrill Lynch came through only after Fastow orally promised the brokerage that its $7 million investment in three electricity-producing barges would be bought out within six months.
A partnership Fastow created to help Enron hide debt and inflate profits — LJM2 — came through in June 2000, buying Merrill Lynch’s interest at a premium for $7.5 million.
The defendants contend Enron was never obligated to buy back or find another buyer for the barges.
Prosecutors informed defense attorneys in June — days before the trial was originally scheduled to begin — that Fastow told investigators he wasn’t explicit about a buyback, having not used the words “promise” or “guarantee.”
Because Fastow is a cooperating witness after pleading guilty in January to two counts of conspiracy, defense attorneys want U.S. District Judge Ewing Werlein to declare him a hostile witness — meaning they can question him more aggressively than usually allowed.
“We need to know before we make a decision” to summon him to testify, Ira Lee Sorkin, who represents former Merrill executive Robert Furst, told the judge last week. Werlein didn’t rule, noting he didn’t know if Fastow would be hostile.
Fastow isn’t on the prosecution’s witness list in the barge case. But the government told defense attorneys he would be available to them if they want him during the trial, which enters its third week Monday.
Leading questions
Kirby Behre, a former federal prosecutor, said if Fastow is declared a hostile witness, defense attorneys can grill him with so-called leading questions, which suggest or contain a desired answer, soliciting only a “yes” or “no” from him. Such questioning can let attorneys have more control over a witness they haven’t previously interviewed.
“If you don’t lead, it’s very hard to force a conversation down a certain path unless the witness wants to,” Behre said.
But Fastow’s status as a cooperating witness may not mean he’s adverse to the defense, Behre added.
“It would be dramatic, no question,” he said of a Fastow appearance.
The crimes to which Fastow pleaded guilty didn’t relate to the barge deal. But they did relate in part to LJM2, one of several shady partnerships and financial schemes he orchestrated to hide debt, inflate profits and pocket tens of millions of dollars on the side in the years leading to Enron’s December 2001 crash.
‘Document custodians’
So far the government has presented nine witnesses. Of those, six — including Michael Kopper, Fastow’s former right-hand man who also ran LJM2 — used to work for Enron. One was a credit analyst for Merrill at the time of the deal, and two were “document custodians” — one for Enron, one for Merrill — who described their efforts to gather and turn over thousands of barge-related and other documents to the government.
Last week ended with Eric Boyt, a former in-house Enron accountant, who was among 11 executives to sign off on the barge deal. He testified he thought the deal was wrong from the beginning, and defendant Sheila Kahanek, his former boss, told him that if questioned, they would justify the deal by saying the verbal promise was nonbinding.