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Defense chips away at Fastow credibility
Skilling's attorney seeks to raise doubt about documents that allegedly incriminate former Enron CEO.
By Shaheen Pasha, CNNMoney.com staff writer

HOUSTON (CNNMoney.com) - The attorney for ex-Enron chief executive Jeffrey Skilling continued his effort Thursday to discredit the star prosecution witness, ex-financial chief Andrew Fastow, challenging the credibility of photocopies of handwritten documents that listed potentially damning side deals between Fastow and Skilling.

Skilling's lead attorney Daniel Petrocelli tried to raise doubt about the authenticity of the documents, implying Fastow only produced the seemingly incriminating evidence to help make the case for the Enron Task Force and assure leniency for himself.

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"The documents surfaced for the very first time in April at a time when it was important to provide some 'ammo' to the Enron Task Force?" Petrocelli asked.

"It may be a coincidence but I think the implication as I understand it is incorrect," Fastow replied, dismissing the accusation that he made up the document to save himself.

"You think these papers are a smoking gun?" Petrocelli pressed on.

"I thought they were very incriminating," Fastow replied.

The so-called Global Galactic documents represent a list created by Fastow in mid-2000 to keep track of a growing number of side deals Fastow said he made with Skilling to ensure that his LJM partnerships wouldn't lose any money by taking on some of Enron's risky underperforming assets.

Fastow -- in his third day on the stand and second under defense examination -- said he destroyed the original documents when he came under scrutiny by the government, but was unaware that he still had a copy in his safe deposit box.

The documents were initialed by Fastow and former accounting chief Richard Causey, who assured Fastow that Skilling was on board with the agreement.

But Petrocelli challenged the documents, saying Skilling never saw the list and didn't initial it, raising doubt that he even knew the list existed. When Fastow attempted to defend the fact that Skilling was aware of the deals, Petrocelli cut him short.

"I don't mean to cut you off ," he began, eliciting a response from Fastow, "But you do," as the courtroom out in laughter.

Tense exchanges between Petrocelli and Fastow continued into the afternoon, when Petrocelli attempted to discredit the conversations Fastow claimed he had with Skilling to enact secret deals.

Petrocelli questioned Fastow on whether there were any handwritten documents or other memos in which he recorded the specific conversations with Skilling. Fastow replied that he had not created such documents.

"We have to rely on your memory and truth telling?" Petrocelli asked.

"Yes, sir," Fastow responded.

Petrocelli also attempted to poke holes in Fastow's assertion that the deals LJM embarked on with Enron, including the series of shell companies known as Raptors, were fraudulent.

Petrocelli said the so-called secret deals that Fastow claimed he had made with senior Enron management had in fact been disclosed to the board of directors.

"If the board knew all those things there would be no secret?" Petrocelli asked Fastow.

"No, sir," he responded, but added that the board was not aware that Enron would have free reign to use the Raptor Vehicles to hedge its poor performing assets at any price it wanted. Such a deal compromised LJM's third party status, making the deal fraudulent, Fastow said.

Enron founder Kenneth Lay's attorney Michael Ramsey will have his shot at the witness on Monday and the cross-examination is expected to take less than a day.

Fastow under fire

On Wednesday, Petrocelli hammered Fastow's credibility by questioning him regarding the millions of dollars he stole from Enron without Skilling's knowledge.

While Fastow, known for his quick temper, managed to control his anger even as he was bombarded with questions about his integrity and criminal dealings, there were moments when the two men sparred openly.

"Your answers sound rehearsed," Petrocelli challenged Fastow on the stand just minutes into the cross examination. "With all due respect, your questions sound rehearsed," Fastow retorted, as laughter filled the courtroom.

"You think this is funny?" Petrocelli asked incredulously.

"No, sir, it's dead serious," Fastow replied quietly.

Fastow's character came under fire Wednesday as Petrocelli portrayed him as a man so overcome with greed that he involved his own wife and children in illegal activities that resulted in his wife, Lea Fastow, serving a year of hard time in a downtown Houston prison.

While Fastow said he regretted involving his wife in his schemes and was remorseful of the pain he caused his family, Petrocelli provided affidavits in which Fastow declined to testify in his wife's trial because it would implicate him in the crimes -- a move aimed at demonizing Fastow and making his testimony against Lay and Skilling less convincing.

During his direct examination by prosecutor John Hueston earlier in the day, Fastow said Lay was aware of Enron's deteriorating financial condition and expected a big third-quarter loss in 2001 -- but kept telling the public and employees the company was "fundamentally strong" and in the best shape it had ever been.

So far, Fastow -- considered to be a crucial witness in the trial -- has implicated both Lay and Skilling in misleading investors and engaging in criminal activities.

During cross examination, Fastow said members of the senior management were guilty of stealing.

"When you artificially inflate earnings, improperly book losses so you can sell stock or make earnings targets so you can make high salaries and bonuses, that is stealing," Fastow said. "I stole in other ways and that way. All that I'm saying is that we stole."

Fastow pleaded guilty to two counts of wire and securities fraud in 2004 and now faces 10 years in prison in return for his expected testimony against his former bosses.

Combined, Lay and Skilling face more than three dozen fraud and conspiracy charges accusing them of lying to investors about the company's financial state while they enriched themselves by selling millions of dollars in stock.

Enron was once the seventh largest corporation in the U.S. until it declared bankruptcy in December 2001, costing 4,000 employees their jobs and resulting in millions of dollars in losses for investors.

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For more on Fastow's testimony Wednesday, click hereTop of page

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