Enron Finance Chief Takes Stand Against Former Boss

Former Enron finance chief Andrew Fastow yesterday offered potentially damaging testimony against his former boss, Jeffrey Skilling, as the trial of the energy firm’s two highest-ranking executives reached a critical stage.

Mr. Fastow, 44, was speaking publicly for the first time since pleading guilty to fraud charges in January 2004, offering a rare first-hand glimpse of what went on behind closed doors at one of the most notorious corporate collapses in history.

He told jurors in a Houston court that Mr. Skilling had urged him to "get me as much of that juice as you can" when he had proposed setting up a second secretive off-balance-sheet entity to help hide Enron’s debts and inflate profits. Asked by the prosecution what that meant, Mr. Fastow said: "Juice the earnings so we could report the numbers we wanted to report."

Enron, once the United States’ seventh-largest firm, filed for bankruptcy in 2001, leaving thousands out of work and investors facing billions of dollars of losses.

Mr. Fastow is a key government witness against Mr. Skilling and Kenneth Lay, who both held the chief executive job at Enron at various times. Mr. Skilling and Mr. Lay together face dozens of charges of conspiracy, fraud and insider trading in a trial that has already lasted five weeks.

Dressed in a grey suit, checked tie and white shirt, and speaking in a southern drawl punctured by a whistle on every "s", Mr. Fastow described how the company had set up its off-balance-sheet entities - subsidiary companies not shown on the balance sheet. The first, called LJM1, was set up in 1999 to help Enron "solve a problem" - that it was facing possible losses on a small investment.

Mr. Fastow said he had broken the Enron code of conduct by running the off-balance-sheet partnerships and exposing himself to conflicts of interest. But he said his dual role had been approved by the office of the chairman.

He detailed some of the transactions made through LJM2, the second of the vehicles. In one instance it bought a Polish power plant from Enron to allow it to book the profits in the final quarter of 1999 and meet its earnings targets. He catalogued the deals in what he called a "global galactic list", initialed by Enron’s chief accounting officer Richard Causey. Mr. Fastow said Mr. Causey had shown the list to Mr. Skilling. Mr. Causey has also pleaded guilty to fraud.

On the witness stand Mr. Fastow recalled board meetings where the risks of the off-balance-sheet vehicles were discussed. He said Mr. Skilling was concerned how much about LJM2 should be disclosed to analysts "because it would attract attention, and if dissected, people would see what the purpose of the partnership was, which was to mask potentially hundreds of millions of dollars of losses".

"The biggest risk was the Wall Street Journal risk," he said. "The risk that it got picked up by the general public, by the media. It would look terrible and bring Enron under a lot of scrutiny."

The defense hopes to prove that any criminal activity at Enron was limited to Mr. Fastow. He has been labeled a liar and a thief by the defense and attacked for "stealing Enron’s good name". The defence contends that Mr. Fastow is pointing the finger at his former bosses in return for a relatively light sentence - he will serve 10 years in prison - and that he could not afford to mount a defense. Asked yesterday why he had pleaded guilty, he replied: "I pleaded guilty because I am guilty and I felt the decision would be in the best interests of my family."

As part of its case the prosecution went on to relate how Mr. Fastow used his own family in the subterfuge, with checks made out to his wife and son used to receive proceeds from one of his off-balance-sheet vehicles. The prosecution asked him why he had involved his family; in a rare moment of genuine regret, he responded: "I shouldn’t have, it was the wrong thing to do."