Risk & Compliance

Enron Defense Points Finger at Fastow

Jurors also hear an audiotape in which Kenneth Lay asserts, ''Andy has been doing an outstanding job as CFO.''
Stephen TaubFebruary 13, 2006

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Former Enron Corp. chief financial officer Andrew Fastow played a major role — at least in name — during testimony Monday at the trial of former Enron executives Kenneth Lay and Jeffrey Skilling.

Fastow came up during the fifth day of cross-examination of former investor-relations executive Mark Koenig, according to the Houston Chronicle. Lay’s lead attorney, Mike Ramsey, asked Koenig whether people were starting to point a finger at the CFO following a poor earnings report the company filed in October 2001. “Oh, yes,” Koenig reportedly responded.

Ramsey also had Koenig read a long Wall Street Journal article published that month; according to the Chronicle, it was the first to seriously question Fastow’s partnerships.

The reading, in turn, set off a mini-controversy: While Ramsey seemed satisfied to have only snippets of the article read aloud, prosecutor Kathy Ruemmler insisted that the article be read in its entirety.

The backdrop is the feeling among a number of observers, noted the Chronicle, that the trial is proceeding too slowly for Judge Sim Lake. After successfully seating a jury in a single day and hearing opening arguments a day later, Lake may well be ready to take measures to move the trial along more quickly, the paper suggested.

On Monday, however, the sluggish pace wasn’t helped by the playback of an hour-long audiotape of an October 23, 2001, analyst call during which Lay reportedly said that “Andy has been doing an outstanding job as CFO.”

By the time of the conference call, Fastow was not only the subject media scrutiny, noted the Chronicle, but also the target of an informal probe by Securities and Exchange Commission. Ramsey reportedly explained to jurors that Lay disclosed the SEC probe even though he wasn’t required to.

On that same conference call, jurors also heard analysts attack Lay and other executives, wrote the paper. One analyst who asked a number of tough questions — and who was reportedly identified by Ramsey as “a short-seller” — was apparently disconnected from the call. Lay then turned his attention to analysts who “have more serious questions to ask,” according to the paper.

The questioning didn’t get any easier, observed the Chronicle, which noted that one analyst was particularly displeased with the answers from chief accounting officer Richard Causey. Lay, too, reportedly found himself asserting, “We’re not trying to hold anything back,” when asked about a number of partnerships set up by Fastow.

The day after the conference call, Fastow was fired, noted the Chronicle; a week later, Enron disclosed that the SEC probe had become a formal investigation.

Ramsey completed his cross-examination — and Ramsey, his seventh day on the stand — on Monday afternoon. On Tuesday, prosecutors are expected to call as their second witness Kenneth Rice, the former chief executive officer of Enron Broadband Services.