Risk & Compliance

Fastow on Deck at Enron Trial

Former chief financial officer will be the next prosecution witness.
Stephen TaubMarch 6, 2006

Examine our Enron archive

Defense attorneys continued their efforts to undermine the credibility of prosecution witnesses as the trial of Kenneth Lay and Jeffrey Skilling resumed on Monday.

Andrew Fastow made a brief appearance in the courthouse, although the former finance chief and his attorney, David Gerger, offered no comment to reporters. Fastow is expected to take the stand Tuesday morning. His testimony is expected to draw an overflow audience, although the current witness has provided some excitement as well.

Last week, Kevin Hannon, the former chief operating officer of Enron Broadband Services, rocked the court with a quotation from Skilling: “They’re on to us.” Bannon had testified that Skilling made the remark at a May 2001 meeting of Enron executives in response to a published note by a research analyst, who was critical of the company’s sales to partnerships run by Fastow.

On Monday, under cross-examination by Skilling lawyer Mark Holscher, Hannon conceded that at the time, Skilling may simply have been sarcastic because he was upset that the research firm catered to short-sellers, according to the Associated Press. Holscher also reportedly noted for jurors that none of the other executives who attended the meeting seemed to have followed up on Skilling’s seemingly explosive statement.

That wasn’t the only interesting exchange between Hannon and Holscher. Last week, noted the AP, the former executive testified that Skilling misled Wall Street analysts during a March 2001 conference call when he provided a rosy picture of the broadband unit when, in fact, it was bleeding cash and facing layoffs in the face of weak revenues.

The defense lawyer reportedly reminded Hannon, however, that in 2002 he had provided extensive testimony to the Securities and Exchange Commission that also painted a similarly rosy picture. Eventually, explained the AP, Hannon conceded that for the jury to believe him today, they must also believe he lied to the SEC four years ago.

According to the Houston Chronicle, Holscher also tried to show that Skilling had been honest with investors while Hannon had tried to indicate to employees that market conditions and the division’s financial health were good when they were not. In fact, Holscher led Hannon one by one through ten statements made by Skilling in a 2001 analyst call that seemed to indicate negative developments concerning Enron Broadband Services, reported the Chronicle.

One statement reportedly read, “Just in general this market place is going through a very tough time,” while another stated, “I look at this as the natural gas business in the 1980s all over again.” Holscher repeatedly asked Hannon whether each statement was a negative outlook, to which Hannon quietly replied, “Yes.”

Holscher pushed harder on the integrity issue, asserting that “for jurors to believe you today, they’ll have to [know that you] perjured yourself several dozen times in your testimony with the SEC, right?” “Yes,” was the reply.