- The Washington Times - Tuesday, March 7, 2006

HOUSTON (AP) — Former Enron Corp. Chief Financial Officer Andrew Fastow testified yesterday he crafted and ran partnerships to help the company hide losses and inflate profits with the blessing of his boss, Jeffrey Skilling.

Fastow appeared contrite in his much-anticipated courtroom confrontation with Mr. Skilling and Enron founder Kenneth Lay, who are on trial for fraud and conspiracy stemming from Enron’s spectacular 2001 collapse.

But he portrayed himself as a cog in a corrupt machine, with Mr. Skilling telling him, “Get me as much of that juice as you can,” regarding the partnerships.

Fastow, 44, also fought back tears as he told jurors in a federal courtroom that his wife, Lea, pleaded guilty to a tax crime and finished a yearlong prison term last July for signing a tax return that didn’t include illegal income from business deals unrelated to the partnerships.

He pleaded guilty to two counts of conspiracy in January 2004 at her urging, more than a year after he was originally indicted on charges of orchestrating schemes to manipulate Enron’s books and enrich himself on the side. His plea was contingent upon the government striking a deal for his wife, who was initially indicted in May 2003.

He said yesterday he misled his wife, and told her the kickbacks — a series of checks written to her, him and their two young sons — were gifts. She endorsed and deposited those checks. Fastow stared at the floor as the checks, with his wife and sons’ names, were displayed for jurors yesterday on a massive screen.

“I did this,” he said, tearful and fighting to compose himself. “I led her to believe that.”

The partnerships that he said Mr. Skilling approved, LJM1 and LJM2, were named with initials of his wife and sons, Jeffrey and Matthew, though Fastow didn’t share that detail with jurors.

Fastow, who agreed as part of his plea deal to serve 10 years in prison, is a key figure of the government’s quest to prove Mr. Lay and Mr. Skilling lied to Wall Street and to their own employees to conceal the crumbling finances that drove the company to seek bankruptcy protection in 2001.

The ex-CFO is central to the defense as well: Lawyers for Mr. Lay and Mr. Skilling say there was no overarching fraud at Enron, and that the only crimes at the company involved Fastow and two of his former lieutenants stealing money through his schemes.

When talking about his admitted frauds at the company rather than his home, Fastow spoke with confidence, appearing almost professorial. He was known at Enron to have a quick temper, but under questioning from prosecutor John Hueston, he showed no combativeness.

He said the LJM partnerships gave Enron a buyer of risky investments or poor assets so the company could record income and wipe debt off its books. Enron didn’t mind that other buyers likely wouldn’t touch them, he said.

“We were doing this to inflate our earnings, and I don’t think we wanted to show people what we were doing,” Fastow said.

He said the LJMs were legal and did many legal deals. “Certain things I did as general partner of LJM were illegal,” Fastow said.

He told jurors LJM1, set up in 1999, helped Enron head off potential future losses from its investment in a small Internet start-up firm. But it couldn’t finance many other deals because it only had $15 million in investment capital, so Fastow talked to Mr. Skilling later that year about setting up LJM2 with at least $200 million.

“He said, ‘Get me as much of that juice as you can,’” Fastow recalled. Mr. Skilling said the same thing in 2000 about a potential LJM3, though the third version never materialized, Fastow said.

At the time, Mr. Skilling was chief operating officer of Enron. He succeeded Mr. Lay as chief executive for six months until resigning in August 2001, when Chairman Lay resumed that role.

LJM2’s carefully coordinated deals often involved “warehousing” Enron assets, or pretending to buy them with a guarantee that the energy company would buy them back at a premium, Fastow said. The deals allowed Enron “to report the numbers it wanted to report,” he said.

Fastow also said Mr. Skilling was concerned about how detailed disclosures to investors about the partnerships would have to be.

“Because it would attract attention, and if dissected, people would see what the purpose of the partnership was, which was to mask potentially hundreds of millions of dollars of losses,” Fastow testified.

The partnerships were lucrative for Fastow. He was guaranteed a $500,000 annual fee when the first one was set up in 1999 and was also promised 2 percent of the invested capital in the partnerships. Fastow said he raised almost $400 million for LJM2.

Fastow said such partnerships commonly give the general partner 2 percent of the invested capital — but the additional half a million dollars per year was an extra boost.

Enron’s board, which included Mr. Skilling and Mr. Lay, approved the financial setup. Fastow said Mr. Skilling told the board that Fastow invested $1 million of his own, and “He should get profits because he’s got skin in the game.”

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