HOUSTON – A former in-house Enron Corp. (search) accountant who signed off on a year-end 1999 alleged sham sale of several barges to Merrill Lynch & Co. (MER) told prosecutors he thought the deal was wrong from the beginning.
Now he awaits questioning from the lawyer representing his former boss, Sheila Kahanek (search), who is one of six defendants on trial for fraud and conspiracy stemming from the deal.
The accountant, Eric Boyt, testified last week in the first criminal trial springing from Enron's 2001 collapse, which centers on the sale of electricity-generating barges moored off the coast of Nigeria. The government contends the $12 million pretax profit Enron booked from the sale was a sham because Enron promised to find a buyer for or buy back the barges by mid-2000.
The defendants contend the deal was proper because Enron was never obligated to buy back or find another buyer for the barges.
Boyt said last week that Kahanek told him that if they were ever questioned about the deal, they could say it was justified because the verbal promise was nonbinding.
Boyt was the ninth prosecution witness to testify so far in the trial, which began two weeks ago.
But a much higher-profile executive from Enron's heyday who isn't on the prosecution's witness list — former finance chief Andrew Fastow (search) — may yet make an appearance.
Ira Lee Sorkin, who represents former Merrill Lynch executive Robert Furst, asked U.S. District Judge Ewing Werlein last week to declare Fastow a hostile witness. Sorkin said such a designation would help the defense teams decide whether to summon Fastow to testify because they could question him more aggressively than usual.
Fastow's name has come up repeatedly during the trial, because prosecutors say Merrill Lynch came through in the deal after Fastow verbally promised the energy company would buy back or find a buyer for the barges by June 30, 2000. A partnership Fastow had created to help Enron hide debt and inflate profits bought Merrill Lynch's interest at what the government says was an agreed-upon premium.
Prosecutors informed defense attorneys in June, days before the trial was originally scheduled to begin, that Fastow told investigators he wasn't explicit about a buyback, having not used the words "promise" or "guarantee."
But Fastow is a cooperating witness for the government after pleading guilty in January to two counts of conspiracy, and defense attorneys want more freedom to grill him. Prosecutors have said Fastow will be available to the defense if they want him.
"We need to know before we make a decision" to summon him to testify, Sorkin said. Werlein didn't rule on the request.
Kirby Behre, a former federal prosecutor, said if Fastow is declared a hostile witness, defense attorneys ask so-called "leading" questions, which suggest or contain a desired answer.
"If you don't lead, it's very hard to force a conversation down a certain path unless the witness wants to," Behre said.
In addition to Kahanek and Furst, the barge defendants are former Merrill Lynch executives Daniel Bayly, James A. Brown and William Fuhs, and former Enron finance executive Dan Boyle.