Fastow and Skilling on 'bear hugs'
Fastow, under the lens of Skilling's defense lawyer, gives muted testimony on side deals and rampant greed.
NEW YORK (FORTUNE) - "Where is the closest bar?" asked defense lawyer Dan Petrocelli, as he and his client, Jeff Skilling, stepped out of the Houston federal courthouse Thursday afternoon, to face a buzzing throng of cameras and reporters.
Petrocelli had just completed his cross-examination of former Enron CFO Andy Fastow, and the government witness may well have been asking the same question.
Fastow isn't done yet -- Mike Ramsey, Ken Lay's defense lawyer, will have his turn for about three hours Monday morning. But Petrocelli had already taken some major whacks at Fastow's credibility. Indeed, this assault hit a tipping point late Thursday morning, as Petrocelli questioned Fastow's efforts to unload a 13 percent stake in a troubled Brazilian power company owned by Enron.
Earlier, Fastow had recalled telling Skilling he viewed the project as "a piece of shit," but that his LJM partnership had bought its share in late 1999 for $11.3 million anyway to help Enron book profits -- after Skilling had offered Fastow a "bear hug" guaranteeing that LJM wouldn't lose money on the deal.
Now Petrocelli presented a letter Fastow had drafted in September 2000 to his LJM partners, offering to buy out their stakes in the Brazilian plant for $100,000. Was that how much he really thought the plant was now worth?
"No," Fastow replied. "I was trying to cheat my limited partners."
Are all lies the same?
At that point, one more fresh example of Fastow's shameless greed made it seem as though there was no betrayal he wouldn't commit, no lie he wouldn't tell, in his obsessive pursuit of ever more millions at Enron. In court, he has freely acknowledged his own despicable behavior, spoken of accepting the painful consequences of his actions (including a 10-year prison sentence), and sworn that he is now -- finally -- telling the truth.
How will the jury view this? Fastow offered a powerful account of what went wrong at Enron, implicating both Skilling and Lay in new ways. But if the messenger has been discredited, will it completely discredit the message? Will the jury buy his tale of contrition and repentance?
Altogether, it was actually an easier day for Andy Fastow, who seemed less combative, almost subdued and simply drained, as he politely fielded Petrocelli's questions. In good part, it was simply because of the subject matter. Having bloodied Fastow personally for stealing money and telling lies -- an issue of credibility, not the facts at issue in the trial -- Petrocelli had less success poking holes in the story he told about how Enron actually did business.
In opening fire on that front, Petrocelli argued that Fastow -- who he cast as guilty of even worse offenses than he acknowledged in the realm of greed and personal theft -- was, when talking about Enron's misdeeds, confessing to crimes that neither he nor his bosses actually committed. In short, this personally bad guy -- with his penchant for too-clever trickery and dark amorality -- was, in his corporate duties as CFO, entirely on the up and up.
Petrocelli repeatedly forced Fastow to acknowledge that he had little or no proof for his claims that Skilling had cut illegal secret side deals with him involving his LJM partnerships. This underlined that Fastow was asking the jury to accept the word of an admitted liar.
The 'smoking gun' -- or not
Not surprisingly, a central Petrocelli initiative was to cast doubt on the significance of the one such critical document that has surfaced: Fastow's 'Global Galactic' agreement -- a three-page handwritten memo that appears to list illegal side deals guaranteeing LJM a profit on a string of transactions it did with Enron.
The document is initialed by Fastow and former Enron chief accounting Richard Causey (also now a government witness), and has been cast as a smoking gun in the case. Fastow testified this week that it reflected his private agreements with Skilling, and that Causey told him he had confirmed these arrangements with Skilling.
But in lengthy questioning about the memo's creation -- and how a photocopy resurfaced in April 2004, four years later, in the Fastows' bank safe-deposit box -- Petrocelli suggested the document was a fabrication, aimed at pleasing government prosecutors. Both Fastow and his wife Lea had pled guilty to criminal charges. Lea Fastow was then negotiating a plea agreement for filing a false tax return (she has served a year in prison); Andy Fastow had accepted a 10-year sentence and signed a cooperation agreement with prosecutors.
"You've kind-of pieced together a story," Petrocelli told the witness. He added: "It would be really, really helpful for the Enron Task Force to have a 'smoking-gun' document."
Fastow said his purpose was to keep track of all the secret verbal arrangements he had crafted with Skilling. But he said that he had destroyed the original Global Galactic memo in mid-2001, because he knew the agreements were "very incriminating" -- to both him and Skilling, "among others."
In fact, prosecutors had already introduced other records mentioning the Global Galactic agreement: four appointment calendar entries for Fastow and Ben Glisan, Enron's treasurer, as well as a handwritten page of "talking points" Fastow had prepared for a meeting with Skilling. Still, Petrocelli insisted it was all fishy.
The doubts may remain until much later in the trial, when Causey -- who is far less tainted than Fastow -- will likely take the stand. The former chief accounting officer pled guilty on the eve of trial, accepted a five-year sentence, and is also cooperating with the government.
Bear hugs in court
Petrocelli also ridiculed Fastow's talk of secret side deals altogether (Fastow called them "bear hugs"), at one point asking -- absurdly -- how Fastow could enforce them in court.
"I wasn't thinking of this as a legally binding document," Fastow replied.
"I've never heard of a breach-of-a-bear-hug case," Petrocelli later declared.
"We had two ways of doing business," Fastow replied. "We had the big stack of nice legal documents...And in some cases, we had oral side agreements...and they're not part of the binding legal documents that are prepared by attorneys. I did not think I would go into court and sue on a bear hug."
Skilling, Fastow testified earlier, didn't say "this is a coupon for a bear hug."
The undocumented deals were preserved by mutual self-interest, Fastow said: He got millions, and Skilling got "a very powerful tool for Enron to make the numbers look better than they otherwise would have been."
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