Bent on discrediting former finance chief Andrew Fastow, the government’s star witness in the Enron trial, the attorney for former Chief Executive Jeffrey Skilling on Wednesday called Fastow a “chronic liar” and a “thief” who agreed to testify to avoid going to jail for life.
In a much-anticipated showdown, Daniel Petrocelli peppered Fastow with questions about stealing millions of dollars from Enron Corp. and questioned his motive for testifying.
Fastow, in his second day of testimony, continued his assertions that Skilling and co-defendant Kenneth Lay, Enron’s former chairman, knew of the financial troubles and illegal dealings that enveloped the company but asserted 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 in order to inflate the company’s 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, he 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 from Wall Street favorite to bankruptcy in December 2001 led to landmark reforms in corporate accounting and governance. Skilling and Lay were the face of Enron during its storied rise in the 1990s into a company that appeared to combine the best of an old-line industrial firm with the ingenuity of the so-called New Economy.
But following 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. Fastow agreed to serve a 10-year prison sentence.
Earlier in the day, under questioning from Assistant U.S. Atty. 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.
In an Aug. 15, 2001, meeting, Fastow said, he told 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 write down $1.2 billion in shareholder equity.
A few days later, Fastow said, during a executive meeting to talk about earnings projections for the third quarter, he told Lay the company was running roughly $600 million short of the earnings total forecast 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 pronouncement throughout that fall, Lay repeatedly misrepresented the company’s finances, Fastow testified. Fastow recalled Lay saying in one conference call with analysts that there “are no accounting issues, trading issue or previously unknown problems at the company.”
When asked his reaction to Lay’s remarks, Fastow said, “Most of that statement is false.”
Most of Wednesday’s courtroom activity involved Petrocelli hammering away at the fraud Fastow committed while managing off-balance-sheet entities.
“You must be consumed by insatiable greed,” he said to Fastow, to which Fastow replied, “I believe I was extremely greedy and lost my moral compass.”
Petrocelli 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 regardless of Fastow’s fraud, 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 was deemed to have lied in this trial, prosecutors could ask a federal judge to lengthen his sentence or retry him on the 96 charges that were dropped at the time of his plea.
Petrocelli then turned to Fastow’s decision not to testify on behalf of his wife after she was indicted in 2004 for signing a tax return with her husband that reported as gifts millions of dollars illegally obtained from Enron. Lea 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.