Enron’s Fastow in the Hot Seat

HOUSTON —  The Enron Corp. trial turned into a slugfest Wednesday as the lead defense lawyer for former Chief Executive Jeffrey K. Skilling traded verbal shots with star government witness Andrew S. Fastow and portrayed him as a habitual liar and cheat, willing to use his wife as cover while he looted the company.

Los Angeles-based lawyer Daniel M. Petrocelli opened his cross-examination at full throttle late Wednesday morning, tossing question after rapid-fire question at Fastow, 44, who testified Tuesday that Skilling had blessed financial structures that Fastow created to “juice” Enron’s earnings and keep its stock price high. Earlier Wednesday, Fastow traveled higher up the corporate ladder, saying former Chairman Kenneth L. Lay lied to investors by touting the energy-trading company’s prospects when he knew it was beset with severe problems.

Citing Fastow’s admitted theft of more than $24 million from Enron, Petrocelli said: “You must be consumed with greed.”

“I believe I was extremely greedy and lost my moral compass,” Fastow, Enron’s former chief financial officer, replied, “and I’ve done terrible things that I regret.”

One of those things, Petrocelli said, was embroiling his wife, Lea Fastow, in one of his crooked deals, landing her in prison for a year. Petrocelli implied that Fastow could have prevented his wife’s indictment had he confessed his own crimes and exposed himself to the risk of life in prison.

“You could have been a real hero,” Petrocelli said, echoing Fastow’s earlier remark that he had considered himself “a hero for Enron” when he was running the off-the-books partnerships that he said allowed the company to hide losses and inflate profit. Instead of being a hero, Petrocelli pressed on, “you let your wife go to jail for a year to save you life in prison.”

“My wife and I made decisions that we thought were in the best interest of our family,” Fastow said. Fastow, originally charged with 98 felony counts, pleaded guilty in January 2004 to two conspiracy counts and has agreed to a 10-year prison sentence.

Enron collapsed in late 2001 in what was then the nation’s biggest bankruptcy filing. Thousands of jobs were lost and billions of dollars of stock-market value were wiped out. The implosion led to a wave of legislative and regulatory reforms and to the massive federal investigation that resulted in criminal charges against more than a dozen former Enron executives, including the two at the top who are now on trial -- Skilling, 54, and Lay, 63. They face decades in prison if convicted.

In contrast to his subdued demeanor when questioned by federal prosecutors, Fastow struck a combative stance with Petrocelli, a 52-year-old civil litigation specialist who won a $33.5-million verdict in 1997 for the family of murder victim Ron Goldman in a wrongful-death suit against O.J. Simpson.

There was no repeat of the emotional moment Tuesday when Fastow had brushed away tears during questioning about his wife’s prison sentence. Fastow, in a gray suit and white shirt, seemed determined to take questions his own way, sometimes with near speeches, while Petrocelli tried to box him into yes-or-no replies.

“You’re pretty glib, aren’t you?” Petrocelli said at one point, adding that Fastow’s responses “sound rehearsed.”

“Your questions sound very rehearsed to me,” Fastow shot back.

U.S. District Judge Sim Lake admonished both men to let each other complete their questions and replies before jumping in.

Earlier, while still under questioning by co-chief prosecutor John C. Hueston, Fastow testified that in the months before Enron’s Dec. 2, 2001, bankruptcy filing, even as the company was entering its “death spiral,” Lay continued to make bullish public statements about Enron’s financial health. Lay by then had resumed the post of chief executive after Skilling’s surprise resignation in mid-August.

Hueston used as an example an interview published in BusinessWeek 10 days after Skilling’s resignation in which Lay sought to douse rumors that Skilling’s departure related to troubles within Enron.

“There are no accounting issues, no trading issues, no reserve issues, no previously unknown problems,” Lay said. “The company is probably in the strongest and best shape that it has ever been in.”

At the time, Fastow said, Lay had been updated on a long list of serious financial problems, including that the company’s portfolio of international power plants and other assets -- carried on Enron’s books at a value of $10 billion -- probably was worth barely half that much. Moreover, Fastow said, Enron faced the likelihood of having to announce a third-quarter loss and take write-offs of more than $1 billion, which together would devastate its already battered stock.

There was a cameo appearance at the courthouse Wednesday by Richard M. Scrushy, the former HealthSouth Corp. chief executive who was acquitted of all charges last year in what the government contended was a $2.7-billion accounting fraud at the Birmingham, Ala.-based chain of rehabilitation hospitals he founded.

Scrushy, deeply tanned and in a blue suit, said he was in Houston on business and dropped in at the trial out of curiosity. He did not enter the packed ninth-floor courtroom but visited the fourth-floor “overflow room,” where the proceedings were being shown via closed-circuit television.

In an impromptu hallway news conference, Scrushy deplored what he called the government’s practice of bullying witnesses into giving testimony meant to help prosecutors earn convictions. Scrushy said that if Fastow had done half the things he had admitted to, “Who would ever believe this guy?”

Upstairs, Petrocelli was trying to make the same point to the jury of eight women and four men. He used a large easel and sheet of paper to list the gains from Fastow’s many illegal personal deals -- deals that Fastow admitted he kept secret from Skilling and Lay.

As he questioned Fastow, Petrocelli jotted down the code names of the deals and the gains. At each entry, he asked how much Skilling had made on that particular deal, and each time, Fastow replied: “Zero.” At the end, the chart showed tens of millions of dollars under Fastow’s initials and a string of zeroes under Skilling’s.

Petrocelli also tried to show that professional resentment might have motivated Fastow to steal from Enron and later testify against Skilling and Lay. Fastow acknowledged that Skilling had once removed him from a prestigious job that included starting up a new Enron division. Fastow said Skilling told him: “You have no eff-ing clue what you’re doing.”

Skilling laughed along with the jury at that reply.

Fastow said he was grateful that Skilling didn’t fire him, but allowed him to return to and ultimately head Enron’s finance department. It was there that Fastow created the off-the-books partnerships that he said were used to improperly hide Enron losses and boost reported earnings -- all, according to Fastow, with Skilling’s encouragement.

Petrocelli’s cross-examination is expected to continue today. Lay’s chief defense lawyer, Michael W. Ramsey, will follow with his own cross-examination.