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US: Fastow: "I was being a hero for Enron."

by John C. RoperHouston Chronicle
March 7th, 2006

Andrew Fastow considered himself "a hero for Enron'' for hiding losses and bolstering earnings for the company through partnership deals he created.

Fastow, in his first public comments about Enron since being ousted from the company in late 2001, testified that the partnerships, known as LJM 1 and LJM 2, were designed in part to buy deals Enron wanted to wipe off its books so its financial statments would be stronger.

"I was being a hero for Enron,'' he said several times during testimony.

Fastow, whose hair has gone completely gray since the company's 2001 collapse, appeared calm and with purpose as he described the controversial partnerships.

"We were using this to inflate our earnings," Fastow said.

Fastow appeared eager to tell his story and only showed emotion when asked about why he decided to plead guilty to fraud.

"I thought it was in the best interest of my family not to go to trial, to take responsibility for my actions and go forward with my life," Fastow said, grimmacing as if holding back tears.

In January 2004, Fastow pleaded guilty to two counts of fraud and agreed to a prison term of up to 10 years and to forfeit $24 million.

Fastow said 10 civil suits are pending against him.

Asked by prosecutor John Hueston whether he pleaded guilty because he couldn't afford a defense, Fastow paused, poured a glass of water, took a small sip and a deep breath before answering.

"I pleaded guilty because I am guilty and I thought that decision would be in the best interest of my family," he said.

Hueston wasted little time getting to LJM, which Fastow said he created in 1999 with the blessing of former Enron executives Jeff Skilling, Ken Lay and the board of directors.

Most of Fastow's testimony has either focused on himself or Skilling.

Skilling, he said, told the board that Fastow "has skin in the game" or risk. He said Skilling told board members that the biggest risk, "was the Wall Street Journal risk."

LJM 1 was initially funded with $15 million, $1 million of which came out of Fastow's own pocket.

Asked by Hueston whether he was concerned there was a risk he would lose his personal investment, Fastow said: "Not in my mind, I thought it was pure upside."

Fastow told jurors he stood to "benefit greatly from the partnerships," which he indeed profited from to the amount of some $45 million.

He testified that after the early success of LJM 1, which was initially used to hide an investment loss for Enron's Internet unit, he went to Skilling to tell him more money would be needed for future deals and the creation of LJM 2.

Skilling, he said, told him, "Get me as much of that juice as you can."

Fastow raised some $386 million for LJM 2 and did six deals in eight days in December 1999 that he said were done to help Enron meet end-of-year financial goals.

Hueston quickly ticked through each of those deals, with Fastow telling jurors each was done with minimal or no risk to help the company "mask potential losses of hundreds of millions of dollars."

Prosecutors maintain the partnerships, called LJM 1 and LJM 2, made Enron look strong when in fact it was not. Essentially, the partnerships were used to hide losses or create income.

Defense attorneys say that the partnerships were legal. They say they were used to help make sales more quickly and to protect assets during market swings and because they were approved by the board.

Lay and Skilling have long maintained that Fastow is the real crook in the Enron scandal, who stole "a small amount," around $19 million, through LJM.

LJM operated under the public radar for two years until late 2001 when it was scrutinized by the Wall Street Journal. Shortly thereafter, an SEC inquiry was underway and Fastow was ousted from the company.

Fastow, 44, was charged in 2002 with fraud and money laundering in a 78-count indictment.

In January 2004, Fastow pleaded guilty to two counts of fraud and agreed to a prison term of up to 10 years, to forfeit $24 million, including homes in Galveston and Vermont, and to drop claims to another $6 million.

Prosecutors plan to keep him on the stand for little more than a day to reduce the likelihood that he will say something that could hurt their case.

Defense attorneys are expected to keep him on into next week to try to tear his testimony apart but run the risk of Fastow further tying Lay and Skilling to his misdeeds.

john.roper@chron.com





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