- The Washington Times - Wednesday, March 8, 2006

HOUSTON (AP) — A lawyer for former Enron Corp. CEO Jeffrey Skilling mounted a blistering counterattack yesterday on one of his client’s accusers, saying the witness, an admitted architect of schemes that helped ruin the company, had let his wife go to prison to protect himself.

The cross-examination of Andrew Fastow, who has linked Mr. Skilling and Enron founder Kenneth Lay to massive fraud at the company, provided the most tense and dramatic moments yet 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 own children were indirectly caught up in his crimes.

“So you sacrificed your wife to protect your own self-interests, correct?” Mr. 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?” Mr. 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,” said 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 Mr. 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 by Mr. Petrocelli, Fastow said Mr. Skilling and Mr. Lay received no money from those kickback schemes.

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

Fastow described a meeting on Aug. 20, 2001, in which Mr. 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, Mr. 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 also had given Mr. Lay a rundown of huge looming write-offs, a massive accounting error that would force a $1.2 billion write-down in shareholder equity, and deterioration of fragile financial structures that Enron used to mask losses.

Fastow said he also met with Mr. Lay in September 2001 to discuss detailed questions raised bythe Wall Street Journal about Enron’s off-balance-sheet deals and money Fastow was making off financial partnerships with Enron.

He said Mr. 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 Mr. Lay said in a September 2001 online chat with employees that the company was sound and had a strong balance sheet.

The ex-CFO said he and Mr. Lay met with Goldman Sachs & Co. executives to discuss options, though nothing came of it. Fastow said he chose Goldman because it wasn’t among Enron’s lenders, who would have blanched had they known Enron’s true condition.

In mid-October 2001 Enron disclosed hundreds of millions of dollars in third-quarter losses and slashed shareholder equity by $1.2 billion. Six weeks later, the company dissolved into bankruptcy proceedings.

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

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