Guilty Conscience
An amazing thing happened during the testimony of Andy Fastow, Enron's notorious ex-boy-wonder CFO and soon-to-be inmate. He seemed contrite, credible, and--thanks to a thrashing by the defense--almost sympathetic.
By Bethany McLean and Peter Elkind, FORTUNE

(FORTUNE Magazine) - What I did was reprehensible, and it is not easy to look at yourself and to recognize that about yourself and to admit it. And it took me a long time to do that, and some days--some days it's still hard to do that. I've destroyed my life. All I can do is try to take what's left, ask forgiveness, and be the best person I can be."

So said Andrew Fastow, the notorious former CFO of Enron, during a grueling, at times even brutal, cross-examination by the defense lawyers for his two former bosses, Jeff Skilling and Ken Lay. His repentance was striking in its apparent sincerity--and in its pointed contrast to Skilling and Lay, who are seeking their redemption not through apologies, but by denying that anything wrong happened at Enron. Fastow, once an arrogant boy wonder who now seems shrunken, gray, and much older than his 44 years, unquestionably has a lot to repent for. He used convoluted financial schemes, some of which involved his wife, Lea, to steal tens of millions of dollars from Enron. Lea has already spent a year in jail; Fastow is to begin his ten-year sentence soon.

Putting Fastow on the stand was a big risk for the prosecution because of his blatantly criminal behavior, and even now he can come across as impossibly venal--as he explained his financial contraptions, vestiges of pride in his own cleverness would flicker across his face. During his first day of cross-examination by Skilling lawyer Daniel Petrocelli, he also displayed traces of a temper once feared in the corridors of Enron. Petrocelli began, "Mr. Fastow, it appears that you're giving answers, quite frankly, that sound rehearsed to me. You've been waiting--" Fastow cut him off. "With all due respect, your questions sound very rehearsed to me." Judge Sim Lake had to instruct both men to allow the other to finish speaking.

But Fastow turned out to be a far more effective witness than many expected. As his cross-examination wore on, he became increasingly subdued--"I'm sorry, Mr. Petrocelli," he began to say repeatedly--lending credence to his claims of contrition. While his testimony did provide fresh evidence of just how bad Andy Fastow was, it also provided fresh evidence of just how bad Enron was, evidence that was corroborated by both a little-known witness who followed Fastow and a now-famous one--whistleblower Sherron Watkins.

THROUGHOUT HIS testimony, Fastow had to say, "I lied" or "I was trying to cheat." Petrocelli produced what he called a "booty sheet," showing that Fastow's schemes could have netted him and partner Michael Kopper over $120 million. "When we get right down to it, we are talking about greed, greed, greed. Greed for money. That is what drove you," said Petrocelli. "I was greedy, yes," answered Fastow. "How much of the $120 million on the booty sheet went into Mr. Skilling's bank account?" Petrocelli asked. "As far as I know, zero," Fastow replied.

While Fastow insisted he was now telling the truth--"If I'm not truthful, I could go to prison for life"--defense lawyers argued that given the lack of documentation for some of his allegations, there was no reason the jury should believe him. "I've testified repeatedly that I lied repeatedly over the years," Fastow said at one point. Mike Ramsey, the lead lawyer for Ken Lay, shot back, "When was the magic day that you quit?"

FASTOW TESTIFIED that other executives also stole money from Enron--just in a different way. He said his partnerships helped Enron "make its numbers look the way it wanted [them] to look" and deceive investors. "When you misrepresent the nature of your company, when you artificially inflate earnings, when you improperly hide losses, when you do things like that to cause your stock price to go up, that is stealing," he said. And Fastow didn't hesitate to point the finger. He said that when he discussed his deals with Skilling, Skilling replied, "Get me as much of that juice as you can."

"You think [Skilling is] guilty, right?" barked Petrocelli. "I think we committed crimes together, yes," replied Fastow.

A core assertion of the defense is that Enron's complicated financial structures were approved by accountants and lawyers. But Fastow testified that some of those dealings were in fact illegal because of secret guarantees--enumerated on a three-page handwritten document known as "Global Galactic"--that his partnerships wouldn't lose money even when they took troubled assets off Enron's books. "I was going to scratch their back; they were scratching mine," is how Fastow described the relationship. The Global Galactic document was initialed by both Fastow and former Enron chief accountant Rick Causey (who has also pleaded guilty)--but ultimately Jeff Skilling approved it, Fastow alleged.

Defense lawyers implied that Global Galactic is a fake and argued that there is no real written record of any side deals. "There's not a single piece of paper, not one scratch of paper, that says Mr. Skilling gave you a guarantee, isn't that true?" asked Petrocelli. "I believe that to be correct," replied Fastow, who said he didn't think he needed documents. "It just became the way we did business at Enron.... If [Enron] didn't honor its side agreements, then, you know, I could turn off the spigot," he testified.

But it is not just Fastow's word that the jury must believe; his testimony was bolstered by the witness who followed him, a John Cusack look-alike named Chris Loehr, who was only 24 when he began working for Enron in 1999. "Mr. Fastow told me he had received assurances from Enron that LJM [Fastow's partnership] would not lose money," said Loehr. "What do you remember telling [the FBI] when they made contact?" prosecutor John Hueston asked Loehr, who was testifying under an agreement that he would not be prosecuted. "I remember asking them what took them so long to find me," responded Loehr.

FASTOW provided compelling testimony about why it was that Enron needed his partnerships so desperately--because, contrary to the claims of the defense, it was a deeply troubled company. He recounted telling both Lay and Skilling in 2001 that Enron's international assets had a $5 billion to $7 billion "problem," and thus they needed to consider a serious restructuring, because it would take years for the company to earn its way out. And that is "assuming we don't do anything stupid. You know, we don't have a very good track record of that so far," Fastow said he told Lay and Skilling.

Fastow's testimony was especially damning to Lay, who in the fall of 2001 repeatedly assured both employees and investors that Enron's business was "very strong." Fastow testified that Enron was in such desperate straits at that time that he tried to hire Goldman Sachs to help with a "massive restructuring." "I thought the foundation was crumbling," he said. Under questioning from Hueston, Fastow talked through documents that showed that as the third quarter of 2001 drew to a close, Enron was a stunning $1 billion or so short of the earnings number it had promised Wall Street. The company closed the gap in part by dipping into reserves.

On cross-examination, Lay's lawyer Ramsey argued it was only Fastow's word that Goldman was doing anything other than offering Enron advice on "how to avoid a hostile takeover if one started to happen." Ramsey also suggested that since Enron's results were audited, the earnings therefore really were strong. But Fastow's claims that Lay knew Enron was in trouble were backed up a few days later, when former vice president Sherron Watkins testified about her attempt to warn Ken Lay that Enron could "implode in a wave of accounting scandals." Two days after Watkins met with Lay, Enron began to look into firing her. (While Watkins is a hero to the outside world, she's not a perfect witness. She now makes lots of money giving speeches about Enron, and defense lawyers argued that a not-guilty verdict wouldn't exactly aid her business.)

TWO MOVES by Ramsey may be signs of stress in the defense camp. Fastow, like other witnesses, testified that Enron was not a logistics company that earned a steady stream of profits, as both Skilling and Lay claimed, but rather a trading company. And while Ramsey continued to insist that Enron didn't "trade," he conceded that it made a huge amount of money via a bet in late 2000 that prices in California would rise. "Because Enron was in the right spot at the right time, in the right position in the Western United States during that period of time, they made an absolute windfall killing," Ramsey said. Californians might be happy to have that finally acknowledged, but Skilling, who told investors in early 2001 that "California had little impact on fourth-quarter results," could not have been pleased to hear himself contradicted--by a lawyer in the defense camp, no less. (One argument Skilling's lawyers could offer is that after the massive reserves Enron booked, California technically didn't have much effect on its reported profits.)

At times on the stand, Fastow seemed to be battling with his temper. He would rub his eyes after they teared up, or clench his hands in front of him. But in the end, it was Ramsey, not Fastow, who lost control.

During his testimony, Fastow would occasionally ask for questions to be repeated. Petrocelli didn't seem to mind, at one point saying, "It's my pacing." "No, it's my ears," replied Fastow. Fastow also apologized to Ramsey for not being able to hear, but that wasn't enough for Ramsey. "Can you hear?" he screamed at Fastow. This came at the end of Fastow's four days on the stand, after defense lawyers had repeatedly berated him--after he had berated himself. Fastow, who sometimes does wear a hearing aid, was a beaten-down man by this point. And perhaps because of that, Ramsey's outburst achieved something remarkable: It made at least some in the courtroom feel sorry for Andy Fastow.

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