Fastow: No Record of Skilling's Side Deal Promises

HOUSTON – The former chief financial officer of Enron Corp. conceded Thursday he had no record of conversations in which he says he and former chief executive Jeffrey Skilling made secret side deals that helped the company manipulate its earnings.

Lawyer Daniel Petrocelli questioned Andrew Fastow about a document that came to be called Global Galactic — a written record of the profits that were promised to partnerships run by Fastow when they did deals with Enron.

Fastow has claimed Skilling, who was chief operating officer in 1999 when the partnerships were created, made verbal promises to him — Fastow called them "bear hugs" — that the partnerships would lose no money on the side deals.

Petrocelli asked whether there was "any piece of paper, any e-mail, any notes written on the back of a business card, anything" that documented the conversations with Skilling.

"I can't recall any specific document," Fastow answered.

Fastow claims Enron made deals with the partnerships he ran to conceal poorly performing assets and help Enron meet Wall Street earnings expectations.

The ex-CFO says he destroyed the original Global Galactic document, but a photocopy of it turned up in 2004 in a folder along with Fastow's employment agreement in a safe deposit box he kept at home.

The document bears the initials of Fastow and Richard Causey, Enron's former top accountant, but not Skilling's.

Fastow, a pivotal witness for the government, was facing a second day of cross-examination in the fraud and conspiracy trial of Skilling and Enron founder Ken Lay.

On Wednesday, Petrocelli said Fastow watched his own wife go to prison rather than come clean to federal investigators about his crimes.

Lea Fastow served a year in prison for submitting a tax return that failed to classify as income kickbacks intended for Fastow — some of which were sent in the form of checks to his two young sons.

At the time, Andrew Fastow, had pleaded not guilty and was planning to go to trial. He later pleaded guilty to two counts of conspiracy and agreed to serve up to 10 years in prison.

"So you sacrificed your wife to protect your own self-interests, correct?" Petrocelli asked.

"I did not go in and plead guilty before that point in time, that's correct," replied Fastow.

With good behavior, Fastow, 44, has the chance to shave just 18 months off of his 10-year sentence. The government can still prosecute him on 96 criminal charges if they are unhappy with his testimony against Lay and former CEO Jeffrey Skilling.

Petrocelli seized on Fastow's cooperation agreement with the federal Enron Task Force, saying turning on Skilling was his "one way out" of a life in prison. Fastow adamantly disagreed.

"I decided it was in the best interests of my family to instead plead guilty, to take responsibility for my actions and to try to make the rest of my life as productive as I can and as good as I can for my family," Fastow said.

Fastow testified earlier Wednesday that Lay was aware of the company's withering finances in late 2001, even as he gave glowing reports to employees and the media.

Fastow said he gave Lay a rundown of huge looming write-offs, a massive accounting error that would force a $1.2 billion writedown in shareholder equity and deterioration of fragile financial structures that Enron used to mask losses.

Still, Lay insisted publicly in late 2001, only months before Enron went bankrupt, that the company was fundamentally sound.

In an interview with BusinessWeek on Aug. 24, 2001, days after taking the CEO reins from Skilling, Lay said Enron had no accounting problems and declared, "The company is probably in the strongest and best shape that it has ever been in."

Fastow testified that four days earlier, on Aug. 20, Lay and other top executives attended a meeting and heard about a "hole in the earnings" — projections that Enron would fall far short of Wall Street expectations for the quarter.

Asked by a federal prosecutor about the Lay interview, Fastow said: "I think most of the statements in there are false."

Fastow has also testified that Skilling gave his blessing to Fastow-run financial arrangements that were designed to mask huge losses at Enron and improve the company's bottom line to please Wall Street.

Wednesday's cross-examination lived up to the high drama court observers had expected. When Petrocelli told Fastow his answers sounded well-rehearsed, Fastow said: "With all due respect, your questions sound very rehearsed to me."

The defense lawyer shot back: "We're talking about the fact that your wife because of your conduct spent one year doing hard time. And you think that's funny?"

"No, sir, it is not funny at all," Fastow said.