Fastow links Skilling to losses at Enron
Updated: 2006-03-08 09:38
"Because it would attract attention, and if dissected, people would see what
the purpose of the partnership was, which was to mask potentially hundreds of
millions of dollars of losses," Fastow testified.
The partnerships were lucrative for Fastow. He was guaranteed a $500,000
annual fee when the first one was set up in 1999 and was also promised 2 percent
of the invested capital in the vehicles. Fastow said he raised almost $400
million for LJM2.
Fastow said such partnerships commonly give the general partner 2 percent of
the invested capital ¡ª and the additional half a million dollars per year was an
Enron's board, which included Skilling and Lay, approved his pay for the
deals. Fastow said Skilling told the board that Fastow invested $1 million of
his own, and "He should get profits because he's got skin in the game."
The ex-CFO testified that directors also approved his role in the
partnerships and waived Enron's code of conduct, which barred officers from
participating in ventures that posed a conflict of interest.
Fastow described several deals in which LJM2 saved Enron from losses.
He said Skilling urged him to have one of the partnerships buy a minority
stake in a troubled Brazilian power plant owned by Enron to help meet earnings
targets. Fastow balked.
"I told him it was a piece of (expletive), and no one would buy it," Fastow
recalled. He said he relented in part because he stood to make money personally
on the deal and Skilling assured him he would lose no money.
He said he believed Skilling's verbal assurance, which wasn't written
"The way we were using LJM was to help Enron prop up its numbers. I knew
Enron would not want to leave LJM out in the cold because Enron would want to do
more deals," he said.
During Fastow's testimony, Lay and Skilling occasionally took notes but
showed little reaction.
Fastow is among 16 ex-Enron executives who have pleaded guilty to crimes. The
defense claims such witnesses confessed to crimes they didn't commit under
pressure from the Justice Department's Enron Task Force.
Federal prosecutors can recommend lenient punishments for such cooperators ¡ª
more than enough incentive, the defense claims, for them to tell the government
what it wants to hear.
Fastow is unique in that he agreed up front to serve a decade in prison. His
only hope of serving less time will be to behave well in prison, possibly
reducing his term by 18 months. But the government has the option to prosecute
Fastow on 96 other criminal counts originally brought against him if they deem
his cooperation unsatisfactory.
Fastow also acknowledged committing crimes in order to manipulate Enron
earnings and enrich himself.
He originally pleaded not guilty but changed the plea, he said, because "I
thought it was in the best interest of my family not to go to trial, to take
responsibility for my actions and to try to move forward in my