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Enron's Fastow grilled in cross-examination

A lawyer asks the former CFO: "You sacrificed your wife to protect your own self-interests, correct?"

HOUSTON - A lawyer for former Enron Corp. chief executive Jeffrey Skilling mounted a blistering attack Wednesday on the admitted architect of schemes that helped ruin the company, saying he let his wife go to prison because of his raging greed.

The cross-examination of Andrew Fastow, who has linked Skilling and Enron founder Kenneth Lay to huge fraud at the company, provided the most tense and dramatic moments in the federal trial of the former chief executives.

Lawyer Daniel Petrocelli focused on the willingness of the former chief financial officer to watch his wife, Lea, serve a year in prison rather than come clean with federal investigators, and Fastow's admission that his children were indirectly caught up in his crimes.

"So you sacrificed your wife to protect your own self-interests, correct?" Petrocelli asked, in a tone of disbelief.

"I did not go in and plead guilty before that point in time, that's correct," Fastow replied.

Lea Fastow served a year in prison for submitting a tax return that failed to classify as income the kickbacks intended for Fastow, some of which were sent in the form of checks to his two young sons.

"To do those things you must be consumed with an insatiable greed. Is that fair to say?" Petrocelli asked.

"I believe I was extremely greedy and that I lost my moral compass and I've done terrible things that I very much regret," answered Fastow, who has pleaded guilty to two conspiracy counts and agreed to serve up to 10 years in federal prison.

The defense lawyer sought to undermine testimony in which Fastow said Skilling gave his blessing to financial partnerships designed to hide losses at Enron and meet investors' earnings expectations.

The kickbacks Fastow received that roped his wife into the Enron scandal were separate from those financial partnerships. Under questioning from Petrocelli, Fastow said Skilling and Lay received no money from those kickback schemes.

Fastow also said Lay spread false information to Enron employees and the public in late 2001 when he knew the company's finances were crumbling, contrasting Lay's claim that he thought Enron was healthy right to the end.

Fastow described a meeting on Aug. 20, 2001, in which Lay and other top executives heard about a "hole in the earnings" - projections that Enron would fall far short of Wall Street expectations for the quarter.

Days later, in an interview with BusinessWeek, Lay said Enron had no accounting problems and declared, "The company is probably in the strongest and best shape that it has ever been in."

Asked by a federal prosecutor about the Lay interview, Fastow said: "I think most of the statements in there are false."

Fastow said he had given Lay a rundown of huge looming writeoffs, a huge accounting error that would force a $1.2-billion writedown in shareholder equity, and deterioration of fragile financial structures that Enron used to mask losses.

Fastow said he met with Lay in September 2001 to discuss detailed questions raised by the Wall Street Journal about Enron's off-balance-sheet deals and money Fastow was making off partnerships with Enron.

He said Lay decided to issue a brief statement backing the partnerships rather than answer the questions.

Fastow said he suggested major restructuring for Enron, including a possible merger, before Lay said in a September 2001 online chat with employees that the company was sound and had a strong balance sheet.

Fastow's testimony was highly anticipated. He has kept quiet in the four years since Enron imploded, declining to make public statements and pleading the Fifth Amendment before Congress.

And on Wednesday, the cross-examination lived up to the high drama court observers had expected. When Petrocelli told Fastow his answers sounded well-rehearsed, Fastow said: "With all due respect, your questions sound very rehearsed to me."

The defense lawyer shot back: "We're talking about the fact that your wife because of your conduct spent one year doing hard time. And you think that's funny?"

"No, sir, it is not funny at all," Fastow said.

At one point, the exchange grew so antagonistic that U.S. District Judge Sim Lake stepped in and ordered the men not to interrupt each other.

Fastow, 44, has agreed to a 10-year prison term, with the chance to shave 18 months off for good behavior. The government can prosecute him on 96 criminal charges if they are unhappy with his testimony against Lay and Skilling.

At least one person in the crowd packing the fraud and conspiracy trial of Enron Corp.'s former chief executives can see things from their point of view - fired HealthSouth CEO Richard Scrushy. He dropped in on the federal trial of Kenneth Lay and Jeffrey Skilling Wednesday afternoon to hear testimony from Enron's ex-chief financial officer, Andrew Fastow. Scrushy was acquitted last year of criminal charges stemming from a $2.7-billion accounting fraud at the Birmingham, Ala., medical services company, after five of his former CFOs testified against him. He said he was in Houston "on business," which he declined to explain. "I wanted to hear for myself what was going on," Scrushy said. "I wouldn't believe anything that man (Fastow) said. This is horrible that there are people who would do something like this to a company."

[Last modified March 9, 2006, 03:00:34]