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The former finance chief also endures a withering cross-examination and elicits an eruption of laughter at the expense of a Skilling attorney.
Stephen Taub, CFO.com | US
March 8, 2006
Examine our Enron archive
Andrew Fastow pointed the finger at Enron Corp.'s former chairman — and began what are expected to be many days of brutal cross-examination by defense attorneys — as the trial of Kenneth Lay and Jeffrey Skilling played to an overflow crowd on Wednesday.
Even HealthSouth Corp. founder Richard Scrushy made an appearance, reported the Houston Chronicle. "I wanted to hear the truth vs. trying to hear the media reports," Scrushy told the Chronicle during a break. Scrushy added that he didn't believe Fastow's testimony and didn't think jurors would, either. "I see this guy as a very dishonest man," he reportedly said; "I wouldn't trust him if he said the building were on fire."
That testimony, which yesterday focused on Skilling, today turned the blame on Lay — at least during questioning by the prosecution. According to The Wall Street Journal, Fastow stated that in August 2001, he told Lay that Enron's international assets were overvalued and its partnerships faced losses that could lead to large write-offs and reduced earnings. Reportedly, Fastow also testified that he had recommended a major restructuring for Enron.
Despite these warnings, Fastow reportedly elaborated, Lay never mentioned to analysts or investors that the company was mulling a write-down.
According to the Journal, in a September 26 electronic chat with employees, Lay called Enron "fundamentally sound. The balance sheet is strong, our financial liquidity has never been stronger, and we have record earnings and results." He also reportedly told employees the company's historic growth made its shares "an incredibly cheap stock."
This "outside view of Enron," as Fastow reportedly called it, dramatically conflicted with the "inside view" — the day-to-day financial struggles that the company's executives were experiencing, according to the paper.
Fastow testified that Lay decided to call a loss on an investment "nonrecurring" even though a gain on the same holding was earlier characterized as "recurring," according to the Journal. "I thought that was an incorrect accounting treatment," said Fastow. He also reportedly noted that in October 2001, Lay mischaracterized the reason for a $1.2 billion reduction in shareholder equity despite Fastow's warning.
Later Wednesday morning Fastow was turned over to the defense, and Skilling lead attorney Daniel Petrocelli set on him immediately with a barrage of questions designed to cripple his credibility. (Petrocelli went so far as tell the former finance chief, "I'm going to ask you lots of questions." Fastow's cool reply, according to the Chronicle: "Yeah, I can see by the binders." The courtroom reportedly erupted in laughter.)
Petrocelli grilled Fastow about his statement Tuesday that he thought he was being "a hero for Enron" by hiding losses and bolstering the company's balance sheets. "Were you a hero when you stole from Enron, yes or no?" asked Petrocelli, according to the newspaper. "No I was not," was the reply. "Were you a hero to Enron when you cheated and defrauded Enron's shareholders?" continued the attorney. "That's when I believe I was being a hero...but that's why I'm here today," Fastow reportedly replied.
Petrocelli also attacked Fastow over his testimony that he allowed his wife, Lea, to spend nearly a year in prison. "So you sacrificed your wife to protect your own self interests?'' asked the attorney, according to the Chronicle. "You could have been a real hero!'' Petrocelli also reportedly ripped into Fastow for not admitting to the government that he lied to his wife, who was subsequently convicted for filing a false tax return.
Fastow reportedly acknowledged that "it was my actions that caused my wife to go to prison, and I'll live with that for the rest of my life."
Petrocelli also accused Fastow of being motivated to say what ever it took to get Skilling convicted, the newspaper reported. "When the history books are written about what happened at Enron, you know your name is going to be on that page," Petrocelli reportedly stated. "You want to make sure that Mr. Skilling's name is on that page."
"You know what I'd like written on that page? That I had the courage to admit that I did something wrong," Fastow reportedly replied.