Fastow gave his first open court testimony in the scandal on Tuesday, as the key witness in the prosecution of Enron’s two former top executives, founder Kenneth Lay and former chief executive officer Jeffrey Skilling.
He explained in court how he set up arcane side deals to help hide Enron’s massive losses and how Lay and Skilling not only sanctioned the deals but actively promoted his activities.
Fastow testified he structured off-balance sheet partnerships that would buy poorly performing investments from Enron “to take them off the books”.
These partnerships known as LJM1 and LJM2, helped disguise the company’s losses and would “help Enron make its numbers look they way it wanted to look,” Fastow said. The initials are those of Fastow’s wife and children.
He then told the court Skilling had instructed him to get him “as much of that juice as you can”, referring to the revenue generated by the entities. He admitted that he “stood to benefit financially greatly” from the side deals “whether they made money or not.”
He received a guaranteed minimum of four million dollars in management fees from LJM1 alone. That does not include the millions more he made as a percentage of profits.
Fastow said Skilling was concerned about how much of the partnership could be disclosed to investors and analysts.
“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.
Most important witness
Fastow, himself has already pleaded guilty and faces up to 10 years in prison on two counts of conspiracy. He struck a deal with prosecutors for a lighter sentence in exchange for helping authorities.
Ross Albert, an Atlanta securities lawyer and former enforcement lawyer for the US Securities and Exchange Commission told AFP that Fastow’s testimony is critical in this case.
Fastow “is the single most important witness in the case,” said Mr Albert. “He may be the key. If the jury doesn’t believe his testimony they may not convict at all.”
Because of Fastow’s high rank at the company, he is better able to show a more direct role of the CEOs in misleading investors.
Other former Enron executives who have testified in the case had more limited contact with Lay and Skilling, most of whom, like Fastow pleaded guilty in exchange for cooperating with authorities.
The Enron case has become a symbol of corporate greed in the United States and if convicted Lay and Skilling face lengthy prison terms.
Skilling alone faces 31 counts of conspiracy, securities fraud and insider trading while Lay, the Enron chairman, faces seven counts of conspiracy and securities fraud.
Lay also faces four counts of personal banking violations that will be tried separately later.