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Ex-Enron CFO Fastow Set to Face Former Bosses
Reuters News
By Matt Daily
March 6, 2006
(c) 2006 Reuters Limited

HOUSTON, March 6 (Reuters) - Andrew Fastow, Enron Corp's former financial chief and the architect of its most devious accounting schemes, will the take the stand this week as the star witness at the trial of his former bosses Ken Lay and Jeffrey Skilling.

The appearance of Fastow, 44, as early as Monday afternoon or Tuesday, comes midway through the prosecution's case.

It will follow on the heels of several witnesses who testified that former CEOs Lay and Skilling knew of, and often directed, the financial shell game to hide billions of dollars in losses to create a rosy picture at the energy trader.

"Andy Fastow knows where all the bodies are buried and he's going to connect the dots," said Jake Zamansky of Zamansky and Associates, a New York law firm that represents victims of securities fraud.

Lay, 63, who was also Enron's chairman, is charged with seven counts of conspiracy and fraud, while Skilling faces 31 counts of conspiracy, fraud and insider trading linked to the demise of the company that was once the seven largest in the United States.

Both men face decades in prison if convicted.

Fastow, the once high-flying chief financial officer at Enron, used sophisticated securitization tools to hide tens of billions of dollars in poorly performing Enron assets while at the same time inflating the company's earnings.

Fastow is the highest ranking of the 16 ex-Enron employees set to testify at the trial who have struck plea deals and agreed to cooperate with the government.

He pleaded guilty in January 2004 to two counts of conspiracy to commit wire and securities fraud, agreed to forfeit nearly $24 million and will spend 10 years in prison. His wife, Lea, served a one-year sentence in jail for filing a false tax return in a case that was an outcropping of his.

UNCERTAIN IMPACT

Though he will be the highest ranking executive so far to take the stand, Fastow's testimony and impact on the case are far from certain, legal experts said, and he will be subjected to a blistering cross examination by Lay and Skilling's lawyers.

"I would imagine the government lawyers are as equally worried about his testimony as the defense lawyers," said Brad Lewis, partner at Fenwick & West LLP, a former federal prosecutor who is now the head of the white collar segment at the California firm.

Lay and Skiling contend that it was Fastow who stole tens of millions of dollars by operating the off-the-books partnerships that bought Enron assets. That theft, they say, triggered a classic "run on the bank" that drove the company into the December 2001 bankruptcy that was the then-largest in U.S. history.

Legal experts said prosecutors have done an excellent job so far in building their case brick by brick ahead of Fastow's testimony. That should ease the pressure on their star witness in case he buckles under defense questioning.

"So you can get one brick knocked out, but your wall is still standing," Lewis said.

Among the most damaging witnesses to go before the jury in the first five weeks of the trial were the former CEO of Enron's wholesale energy trading business and retail division David Delainey, the former CEO of its Internet unit Ken Rice, and top executives at its investor relations department.

Perhaps the most dramatic testimony came at the end of the day on Thursday when the former Internet unit executive Kevin Hannon told the jury a damning analyst report on the company in May 2001 prompted Skilling to say "They're on to us."

But Hannon is sure to face accusations from defense laywers -- similar to those they have lodged against other witnesses --that his testimony against his former bosses is driven by his desire to please the government to secure a shortened prison sentence.

That defense tactic will not be effective in cross examining Fastow, since his 10-year sentence was agreed upon two years ago, leaving him little to gain or lose at this trial.

"That was a smart thing (for prosecutors) to do. It'll take away another avenue of questioning in cross," Lewis said.

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