Tempers Flare In Enron Trial
A lawyer for former Enron Corp. CEO Jeffrey Skilling mounted a blistering attack Wednesday on the admitted architect of schemes that helped ruin the company, saying he let his own wife to go to prison because of his raging greed.
The cross-examination of Andrew Fastow, who has linked Skilling and Enron founder Kenneth Lay to massive fraud at the company, provided the most tense and dramatic moments yet in the federal trial of the former chief executives.
Defense attorney Daniel Petrocelli launched an immediate attack on Enron's former CFO — calling him a master of manipulation, a liar and a coward who let his own wife go to prison rather than face up to his crimes, CBS News correspondent Lee Cowan reports.
"You must be consumed by insatiable greed," Petrocelli barked. "I believe I was extremely greedy," Fastow admitted, "and that I lost my moral compass."
Watch Cowan's report on Fastow's Wednesday testimony.
Fastow was moved to tears yesterday when he testified he used his wife Leigh to file false tax returns to help hide the money he stole from Enron.
"So you sacrificed your wife to protect your own self-interests, correct?" Petrocelli asked, in a tone of disbelief.
"I did not go in and plead guilty before that point in time, that's correct," Fastow replied.
Leigh Fastow served a year in prison for submitting a tax return that failed to classify as income the kickbacks intended for Fastow, some of which were sent in the form of checks to his two young sons.
Fastow repeatedly said he was ashamed of that -- but that wasn't enough for Petrocelli.
"Your responses sound rehearsed," Petrocelli shouted. "With all due respect, Fastow shot back, "Your questions sound rehearsed."
At one point, the exchange grew so antagonistic that U.S. District Judge Sim Lake stepped in and ordered the two men not to interrupt each other.
The exchange comes after Fastow dealt a blow to the defense when he testified that both Lay and Skilling knew about his shady accounting deals — and that Enron was headed for ruin — testimony Phillip Hilder -- representing former Enron employees — says the defense has to head off.
"They will try to show that he was deceitful in what he did at Enron and that in fact he's still being deceitful in what he's telling the jury," Hilder told Cowan.
But some say Fastow — so used to being portrayed the villain — is holding up well.
"Now the cross examination is gonna have to shoot a holes in the story and the stuff that's happening so far hasn't shot a hole in it," Gerald Treese, a legal analyst told Cowan.
The defense lawyer sought to undermine testimony in which Fastow said Skilling gave his blessing to financial partnerships designed to hide losses at Enron and meet investors' earnings expectations.
The kickbacks Fastow received that roped his wife into the Enron scandal were separate from those financial partnerships. Under questioning from Petrocelli, Fastow said Skilling and Lay received no money from those kickback schemes.
Fastow also said Lay spread false information to Enron employees and the public in late 2001 when he knew the company's finances were crumbling, contrasting Lay's claim that he believed Enron was healthy right to the end.
Fastow described a meeting on Aug. 20, 2001, in which Lay and other top executives heard about a "hole in the earnings" — projections that Enron would fall far short of Wall Street expectations for the quarter.
Days later, in an interview with BusinessWeek, 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."
Asked by a federal prosecutor about the Lay interview, Fastow said: "I think most of the statements in there are false."
Fastow said he also had given 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.
Fastow said he also met with Lay in September 2001 to discuss detailed questions raised by The Wall Street Journal about Enron's off-balance-sheet deals and money Fastow was making off financial partnerships with Enron.
He said Lay decided to issue a brief statement backing the partnerships rather than answer the questions.
Fastow said he suggested major restructuring for Enron, including a possible merger, before Lay said in a September 2001 online chat with employees that the company was sound and had a strong balance sheet.
The ex-CFO said he and Lay met with Goldman Sachs & Co. executives to discuss options, though nothing came of it. Fastow said he chose Goldman because it wasn't among Enron's lenders, who would have blanched had they known Enron's true condition.
In mid-October 2001 Enron disclosed hundreds of millions of dollars in third-quarter losses and slashed shareholder equity by $1.2 billion. Six weeks later, the company dissolved into bankruptcy proceedings.
Fastow's testimony was highly anticipated. He has kept quiet in the four years since Enron imploded, declining to make public statements and pleading the Fifth Amendment before Congress.
Fastow, 44, has already agreed to a 10-year prison term, with the chance to shave just 18 months off for good behavior. The government can still prosecute him on 96 criminal charges if they are unhappy with his testimony against Lay and 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.
Skilling, who was CEO for six months until resigning in August 2001, faces 31 counts of fraud, conspiracy, insider trading and lying to auditors. Lay, who resumed his role as CEO after Skilling's abrupt departure, faces seven counts of fraud and conspiracy.