- The Washington Times - Thursday, March 9, 2006

HOUSTON (AP) — Jeffrey Skilling’s lawyer challenged whether the former chief executive officer gave secret guarantees that partnerships run by Chief Financial Officer Andrew Fastow would not lose money if the two men pretended to buy weak Enron assets to help the company manipulate earnings.

Fastow, whose testimony has been highly anticipated, underwent a second day of intense cross-examination yesterday in the conspiracy and fraud trial of Mr. Skilling and Enron founder Kenneth Lay.

Fastow has linked both of his former bosses to a wide-ranging effort to hide Enron’s wobbly finances from investors, in part by using his partnerships to buy assets and rid the energy company’s books of hundreds of millions of dollars in debt.

Mr. Lay repeatedly has pegged Fastow as a crook who betrayed his trust and helped undermine the company, which collapsed into bankruptcy proceedings in December 2001. His lawyers have yet to cross-examine the ex-CFO.

But Mr. Skilling’s lawyer, Daniel Petrocelli, worked tirelessly to depict Fastow as a liar, cheat, thief and bad husband who failed to plead guilty to any of the dozens of counts against him before his wife was indicted in May 2003. Fastow pleaded guilty to two counts of conspiracy in January 2004.

Zeroing in on a copy of Fastow’s handwritten record of profits that were promised to his partnerships — dubbed the “Global Galactic” — Mr. Petrocelli sought to show that the document was no smoking gun.

Fastow has said that Mr. Skilling, who was chief operating officer when the partnerships were created, promised him that the partnerships would lose no money on two deals noted in the document.

“We had side agreements, Mr. Petrocelli. That’s how we did business,” Fastow said.

In the deals, a partnership dubbed LJM1 bought an interest in a troubled Brazilian power plant in the third quarter of 2000, and another, called LJM2, bought three power plants mounted on barges off the coast of Nigeria in June of that year.

“I believe I would not have acquired the barges without that bearhug,” Fastow said.

While Fastow said he wrote the Global Galactic to keep track of those deals and others, it carries only his initials and those of Richard Causey, Enron’s former chief accounting officer.

Mr. Petrocelli asked whether there was “any piece of paper, any e-mail, any notes written on the back of a business card, anything” that documented the conversations with Mr. Skilling.

“I can’t recall any specific document,” Fastow said.

Mr. Petrocelli also challenged the Global Galactic’s authenticity.

First, he noted that even though Fastow said he destroyed the original in the summer of 2001, a copy that Mr. Causey refused to keep ended up in an envelope in a safe-deposit box that Fastow and his wife kept at a bank. Fastow said he had no idea how it ended up in a folder holding his Enron employment agreement.

His wife, Lea, found the envelope when she checked the safe-deposit box in April 2004 — the same month that she pleaded guilty to a misdemeanor tax crime for helping Fastow hide ill-gotten gains and that prosecutors dropped six felony counts pending against her.

Fastow said his wife put the envelope on his desk, but he didn’t look inside the folder until about a month later. He immediately gave it to his attorney, who gave it to the government, Fastow said.

Mr. Petrocelli also noted an ambitious effort at Enron in early 2000 to sell all of its international assets, including the Brazilian plant and the barges, for $7 billion. The attorney showed an internal Enron memorandum that noted that the energy company needed to repurchase those assets from LJM in order to sell them, which would have negated any reason for the side deals. The effort, dubbed “Project Summer,” never materialized.

“I don’t know what was happening here,” Fastow said. “I did know Enron would take us out.”

Enron ended up repurchasing the Brazilian plant in 2001.

The barges were central in the 2004 convictions at the trial of four former Merrill Lynch & Co. executives and a former mid-level Enron executive. Jurors found them guilty of helping push through a sham deal to sell the barges to the brokerage in late 1999 so that Enron could appear to have made earnings targets, and they are serving prison terms.

Fastow testified yesterday that he promised Merrill Lynch that the brokerage would be bought out at a premium in a verbal side deal. LJM2 came through and bought the barges on schedule at a premium.

“I did that largely based on my understanding that LJM2 would have a similar guarantee from Mr. Skilling that it would be taken out in the future, if necessary, without a loss and its rate of return,” Fastow said.

But he said to Mr. Petrocelli that he did not recall telling anyone at the time that LJM2 bought the plants in June 2000, or that it was making the deal because of the secret side deal with Mr. Skilling.

Enron sold those barges plus another six to AES Corp. later in 2000.

Mr. Skilling, who was CEO for six months until resigning in August 2001, faces 31 counts of fraud, conspiracy, insider trading and lying to auditors. Mr. Lay, who resumed his role as CEO after Mr. Skilling’s abrupt departure, faces seven counts of fraud and conspiracy.

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