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As senators grilled an often visibly angry Jeffrey Skilling for five-and-a-half hours on Feb. 26, the lawmakers heaped the bulk of responsibility for Enron Corp.’s dramatic failure on the company’s former CEO. During the televised hearing, one senator bluntly accused Skilling of lying. Another compared Skilling’s sudden departure from the bankrupt Houston company last summer to a captain abandoning the sinking Titanic as he waved greetings from a lifeboat. During a few rare moments of the grueling proceedings, however, Skilling managed to deflect the attention from himself and lay blame on other Enron key players. Invariably, when the former Enron CEO saw those opportunities, he targeted, by name, Andrew S. Fastow. A former Enron CFO, Fastow was fired in October 2001 after it was discovered he had received some $30 million in compensation from off-book limited partnerships. When a senator asked Skilling about what he did when then-Enron treasurer Jeffrey McMahon raised questions about potential conflicts with Fastow’s dual role in the partnerships and the company, Skilling replied, “I talked to Mr. Fastow, and I put him on notice that someone had raised this issue.” Later, another senator asked about the record of an Oct. 6, 2000, meeting of the Enron board’s finance committee. The minutes of the meeting indicate Fastow told the board members present that Skilling would help mitigate potential conflicts that arose from Fastow’s dual roles as Enron CFO and manager of the off-book partnerships. Specifically, the minutes indicate, Fastow told the board that Skilling would be responsible for reviewing the then-Enron CFO’s financial interest in the company and off-the-book partnerships. “Mr. Fastow was in error,” Skilling told the senators, explaining that he had never known of or been responsible for tracking the CFO’s compensation from the partnerships. Skilling’s attempt to isolate himself from Fastow raises immediate questions. “I believe Mr. Fastow would not have put his hands in the Enron cookie jar without the explicit approval of Jeffrey Skilling,” Enron whistleblower Sherron Watkins told senators later at that same hearing. But, at the same time, Skilling’s naming of Fastow highlights how appealing a target Fastow has become, while he, despite his apparently central role in the Enron debacle, has so far kept himself and his defense lawyers publicly mum. Invoking his Fifth Amendment right to avoid self-incrimination, Fastow in February declined to tell lawmakers his story at a House committee meeting. Since the Enron scandal erupted, he has said practically nothing to the press. When reports emerged that Fastow fled the country, the former CFO sat nearly speechless next to David Boies at a press conference on Dec. 12, 2001, as Boies explained to reporters that his client never skipped out of the United States. Boies, who prosecuted Microsoft Corp., is leading what has developed into a Dream Team of defense counsel. At the press conference, Boies denied the accusations hurled against Fastow, but the allegations have intensified since then. Meanwhile, although other Enron players have begun cooperating with federal prosecutors, no indications have surfaced that Fastow is doing the same. But Fastow’s defense team may begin to gab more in the near future. “Andy is really getting beat up out there. We might be telling our story soon,” concedes John Keker, a criminal defense lawyer and founding partner of San Francisco’s Keker & Van Nest, who joined Boies and the other lawyers representing Fastow — Richard Drubel, who works with New York-based Boies, Schiller & Flexner, and Houston’s Craig Smyser — shortly before the former Enron CEO pleaded the Fifth. The Enron documents released by investigators, now a stack large enough to fill a closet, show that Fastow asked his lawyers about potential conflicts and they gave him advice about how to handle them. Criminal defense lawyers say that advice could be the basis of his defense, should he need one. Smyser, a partner in Houston’s Smyser Kaplan & Veselka, and Boies, a partner in Boies, Schiller in Armonk, N.Y., declines through a spokesman requests for interviews about their defense strategy. A my-lawyers-told-me-it-was-OK defense is time-tested, one expert says. “It works perfectly in white-collar criminal defense cases,” says Tom Mills, a Dallas criminal defense lawyer. The prosecutors in such cases are typically required to prove the defendant has “intent to violate the law.” If Fastow lawyers can argue their client operated in good faith and checked with his counsel, Mills says, the prosecution has a higher hill to climb. “The prosecution can argue that the lawyers were not privy to all the facts,” says Mills, of Tom Mills & Associates. Archibald C. McColl III, another criminal defense lawyer in Dallas, suggests that Enron defendants who point to the counsel they receive are likely to trigger an “ostrich instruction” to the jury. The judge will tell jurors not to forgive the defendants if they stuck their heads in the sand. “That is a very difficult instruction to defend against,” says McColl, a partner in Dallas’ McColl & McColloch. He notes it’s been criticized by U.S. Supreme Court Justice Stephen G. Breyer. A review of the Enron documents released by Congress and interviews with lawyers familiar with the related events paint a vivid picture of a CFO who didn’t hide his complicated arrangements from board members or Enron lawyers. Those documents show that Fastow, for instance, talked at length and openly to Vinson & Elkins partners Max Hendrick III and Joseph Dilg, who interviewed him in August 2001, a week after Watkins sent her now famous, at-the-time anonymous letter. The former Enron CFO told the Vinson & Elkins partners every transaction Watkins questioned had been reviewed by his advisers. Not only had Arthur Andersen accountants reviewed the transactions, but also lawyers from their own firm, Fastow told Vinson & Elkins’ Dilg and Hendrick. Documents drafted at the time of some of the now most controversial moments of the transactions — made public when released by Congress — support the contention that Fastow sought guidance from lawyers, even those such as Jordan Mintz, now general counsel of corporate development at Enron. Hailed as a whistleblower when he testified on Capitol Hill in February, Mintz drafted in June 2001 a memo addressed to Fastow, in which the in-house lawyer explained how the CFO could escape reporting his off-the-books partnership compensation in the company’s next proxy statement for investors. Mintz declines to comment for this story. “Mintz didn’t say he couldn’t do it. He just said, ‘Here’s a better way how to do it,’” notes a member of Fastow’s defense team. One Enron lawyer close to the discussions about the memo says that Mintz wasn’t the architect of the memo. Rather, the lawyer says, he reiterated what Vinson & Elkins partners, more senior members of the legal department, and even Fried, Frank, Harris, Shriver & Jacobson lawyers had told him. But the Special Investigative Committee of the Enron Board, which produced a report on Feb. 1, 2002, suggested broadly that Fastow deceived the board and others in the company in a harmful manner. “The extent of Fastow’s ownership and financial windfall was inconsistent with his representations to Enron’s Board,” concludes the report, drafted by a committee of three outside board members including University of Texas Law School Dean William C. Powers, who has since resigned from his Enron post. The board investigators, whose voluminous investigation has been dubbed the “Powers report,” were advised by Wilmer, Cutler & Pickering of Washington, D.C. In their conclusions, the board investigators argue that Fastow put his personal interest before the company’s and failed to disclose his, his family’s and other employees’ stakes in the off-the-book limited partnerships. DREAM BOSS A graduate of Tufts University who received a master’s of business administration from Northwestern University, Fastow began working for Enron in 1990, after a stint with a Chicago bank. Despite the high-dollar profits he is reported to have reaped, Fastow has not earned a reputation in Houston for extravagance. His family is building an 11,500-square-foot home in the swanky River Oaks section of Houston, but the Galveston house they bought last year was valued at only $202,330. For subordinates, Fastow could be a dream boss. One in-house Enron lawyer, who asks that her name not be used, remembers that Fastow spent 45 minutes with her when she transferred from the Global Finance unit, a group he controlled. “No one else on the 50th floor [the Enron executive suite] did that,” she says. Fastow showed impressive and detailed knowledge about her tasks and showed concern that she was happy while she worked under him, the lawyer recalls. “He wanted to understand. He was a good manager. He knew his employees. He was just interested in building the best shop.” About the anonymous employee who drafted the Aug. l5, 2001, letter, who later was disclosed to be Watkins, Fastow told Vinson & Elkins lawyers he applauded her nerve, according to the documents released by Congress. He told Hendricks and Dilg that it “takes fortitude to stand up and complain, even anonymously.” But he questioned whether a critic as sophisticated as the letter made Watkins appear would not have understood that Arthur Andersen had already blessed all the transactions. He also suggested that the then-anonymous employee was working in conjunction with someone who was seeking his job. The first problematic partnership Fastow got involved in, according to a chronology laid out in the Powers report, originated in 1997. At that time, Fastow helped structure a corporate entity known as Chewco Investments LP. The Chewco concern represented the company’s first known attempt, the Powers report concludes, to use an investment vehicle managed and owned in part by an Enron employee to keep significant investment outside of Enron’s consolidated financial statements. The Powers report claims Chewco was “a mystery to most Enron employees.” According to the Powers report, Fastow selected the moniker based on the Chewbacca character in “Star Wars.” Initially, the goal of Chewco was to purchase California Public Employees’ Retirement System’s (CalPERS’) stake in another joint venture with Enron, so the pension fund managers could free up cash to invest in another deal with Enron. The Powers report alleges that Fastow told other Enron employees that Skilling, who was company president at the time, had initially approved of his equity participation in Chewco — as long as his role didn’t have to be disclosed in a proxy statement. But Skilling contradicts that in the Powers’ report, telling the board investigators that he warned Fastow about cozy and potentially conflict-ridden arrangements. Skilling told the board investigators that Fastow had suggested his wife’s family might take an equity interest in Chewco. Skilling recalled to the board investigators that he told Fastow that wasn’t a good idea. Ultimately, Michael Kopper, a finance manager who worked for Fastow, established an equity interest in Chewco to replace CalPERS’ previous stake. Skilling told Enron board investigators that Fastow made him aware of Kopper’s role and that he believes he discussed it with the board at some point. Since he was not a senior officer, Kopper’s role was not required to be disclosed in a proxy statement. Kopper got the money for his investment from Barclays Bank PLC with Enron backing the debt, the Powers report states. Board investigators note that they located no written documentation about discussions of Kopper’s role with directors. By the end of 1997, Fastow and Kopper apparently wanted to achieve more independence for Chewco from Enron employees — but not too much. In December 1997, according to the Powers report, Kopper sold his interest in Chewco to a friend, whom Enron employees told the board investigators was his domestic partner. Two of Kopper’s lawyers, Eric Nichols of Houston and Edward Horahan of Washington, D.C., decline comment. Nichols is a partner in Beck, Redden & Secrest and Horahan is counsel at Dechert. In June 1999, Fastow went directly to the board to start another off-the-books partnership, LJM Cayman LP, named for the first initials of his wife and two daughters, according to the Powers report. Fastow told the board that LJMI would serve to create a hedge against the company’s purchase of a privately held Internet service provider, RhythmsNet Connections Inc. Board minutes show Fastow sought and received permission to buy interests in the partnerships. A few months later in October 1999, Fastow returned to the board to seek approval of a second off-the-book partnership, LJM2 Co-Investment LP, according to the Powers report. The two partnerships, the report notes, entered into at least 20 deals with Enron. The partnerships would buy an asset from Enron and then sell it back, often giving the company an opportunity to report a profit. LJM2 was the larger fund of the two. Fastow told Vinson & Elkins’ Dilg and Hendrick in August that he raised $349 million in financing for LJM2, supplying 1 percent personally, with the other funding coming from private placement to investment and merchant banks and individuals, the congressional documents state. In his interview in August 2001 with Dilg and Hendrick, Fastow said all materials for LJM partners, including circulars and subscription agreements, were reviewed by Arthur Andersen and Vinson & Elkins. The law firm also issued, according to congressional released documents, true sale opinions. Harry Reasoner, the former managing partner of Vinson & Elkins, downplays the firm’s knowledge of LJM partnerships. “On these, we would have been representing Enron during the transactions with LJM; it would have been like doing a transaction with company X,” Reasoner says. “We would not have been informed about what was going on [inside LJM].” Civil securities litigator, Thomas Ajamie, of Houston’s Schirrmeister Ajamie, doesn’t buy Reasoner’s contention. “I can’t imagine that you wouldn’t look at partnerships,” Ajamie says about lawyers issuing a true-sale opinion, “you need to know all sides.” Ajamie suggests Vinson & Elkins has erroneously adopted this position and will regret it. “I think it’s going to be a difficult argument to make. They would be better off saying they knew, and they didn’t think it was illegal. Somewhere an investigator is going to find among their 40 or 50 lawyers who worked on Enron a paper about the partnerships showing they knew,” he says. The LJM partnerships, Reasoner has stressed in multiple interviews with the media, had their own outside counsel at Chicago-based Kirkland & Ellis. But two in-house lawyers who worked previously at Enron Global Finance but do not want to be identified disagree with Reasoner’s characterization of the firm’s ignorance. “V&E knew what was going on with LJMs. They gave a lot of true sale opinions,” the lawyers say. By March 2000, presumably Fastow began suspecting that some Enron employees didn’t like his way of doing business. Jeffrey McMahon, who became the treasurer in 1998, told Vinson & Elkins lawyers in August 2001 that he went “round and round with Fastow,” raising issues in 2000 about the conflicts of the partnerships, the congressional documents state. McMahon ultimately went to Skilling, the treasurer told lawmakers, to complain about Fastow’s conflicts. None of the eyebrow-raising slowed Fastow down, however. In February or March of 2000, the Powers report states, Fastow helped structure a partnership named Southampton Place LP, after the Rice University-area Houston neighborhood. The Southampton partnership was created to acquire stakes in LJMI. But stakes in Southampton were sold — on very agreeable terms — to five Enron employees, including Kristina Mordaunt, former general counsel of Enron Broadband Services Inc., then-treasurer Ben Glisan, and a foundation in Fastow’s family name. The board investigators talked to Mordaunt about her understanding of the investment. She told them that Glisan, as a messenger for Fastow, assured her that LMJI wasn’t doing any business with Enron. Andrea Yaeger Patel, a non-officer employee, who also received a stake in Southampton, told the board investigators that her bosses (in Fastow’s group) told her that it was a bonus for her work on LJM matters. One in-house lawyer, who asks that her name not be used but who worked for Enron Global Finance, contends it is implausible that Mordaunt didn’t have some idea of the ties among Southampton, LJM and Enron. “If she didn’t know, she was willfully blind,” the lawyer alleges. A graduate of the University of Houston Law Center, Mordaunt was always very guarded about the deals she worked on for Fastow, this lawyer says. She kept all the papers in her office and resisted entreaties to have others review the documents, the lawyer says. Mordaunt’s lawyer, R. Hayden Burns, a partner in Houston’s Burns, Wooley, Marseglia & Zabel, did not return two telephone messages. For the Enron employees who invested in Southampton, the returns delivered three months later in May 2000 were phenomenal. Mordaunt made $1 million for her $6,000 investment, according to the Powers report. Ultimately, the high-dollar amounts contributed to the firings of Mordaunt and the others in November 2001 when the company disclosed in SEC filings that the in-house lawyer and others had failed to notify the board about their stakes, as required by company rules. For his family foundation’s $25,000 purchase in Southampton, Fastow got $4.5 million, the Powers report states. By Oct. 6, 2000, Fastow felt compelled, according to board minutes released by congressional investigators, to review with the board of directors the procedures for guarding against conflicts between the LJM partnerships and Enron. Fastow told the board that Skilling reviewed all the transactions as well as Fastow’s compensation. He did not make any reference to the compensation of other Enron employees, according to the minutes. Skilling has supplied various versions of this meeting, all scenarios that suggest he was less than involved. He told congressional investigators he might have been out of the room. He told the Senate the electricity had been going on and off and caused confusion. To the Powers report investigators, Skilling said he only reviewed handwritten estimates of Fastow’s compensation. He calculated that Fastow’s stake in Enron overshadowed his interests in LJM, Skilling told the Powers report investigators. “We do not believe [Skilling's] reasoning is valid,” the Powers report says in a footnote. One Enron executive recalls that Fastow had portrayed Skilling’s knowledge of his compensation from the off-the-book partnerships both ways. At times, the executive alleges, Fastow contended Skilling knew about his compensation. And later, the CFO allegedly told him, Skilling didn’t have any idea about his profits and management fees from the partnerships. In November, Mintz assumed the job as Enron Global Finance general counsel, working for Fastow. Mintz, who had served as a vice president in the tax department, had wanted the job for some time, according to two Enron lawyers who wish to remain anonymous. Earlier, when Fastow had asked for him to fill the position, Enron’s general counsel, James V. Derrick, allegedly nixed the idea, according to an Enron lawyer who does not want to be named, because he wanted to give it to someone in his own legal department. But then when the lawyer Derrick had approved for the position was pushed out for unrelated reasons, according to three Enron lawyers familiar with the situation, Mintz got tapped. DRAMATIC STEP It didn’t take long for Mintz, a well-respected lawyer within Enron, to start raising questions. In memos released by a congressional committee, Mintz launched a campaign started in December 2000 to prompt risk officers to look into the issues about the internal review process for LJM deals as well as proxy-disclosure issues. In a January 2001 memo to his subordinates, Mintz was frank. He discussed “sweetheart deals” and “the legitimacy of financial treatment.” In March that same year, however, after a meeting with the risk officers and Derrick, Mintz used much more conservative language. He wrote in memos about “refining our compliance procedures with respect to the company’s transactions” with the partnerships. In his testimony on Capitol Hill, however, Skilling said that Mintz more accurately described the proper procedures for guarding against conflicts among LJM, Fastow and Enron, as compared to the versions that the CFO had offered the board in October 2000 — which, not coincidentally, gave Skilling more responsibility. At about the same time, in March 2001, Fastow now helped another employee, who ultimately would be testifying in largely unfavorable terms about him to Washington lawmakers. Watkins was laid off in March, the congressional documents state. She was given the option to seek another position at Enron and chose an offer in June from Fastow to work for him, rather than a position with the public relations department. In May 2001, Mintz took what in hindsight was a dramatic step. He hired Fried Frank to act as special counsel to Enron Global Finance “in a matter involving disclosure and other securities related advice,” according to a letter sent by Alan Kaden, a Washington, D.C.-based partner in the firm. Kaden did not return a call seeking comment. On June 4, 2001, after he began receiving advice from Fried, Frank lawyers, Mintz wrote a memo to Fastow that he copied to then-Enron GC Derrick as well as his deputies Rex Rogers and Robert Walls (the current GC) and V&E partner Ronald Astin. (Through his lawyer, Derrick declines an interview, and Astin declines through a firm spokesman.) In the one-page note, Mintz laid out for Fastow “the key steps to be taken so as to minimize any related-party and proxy disclosure Enron would be required to make in 2002 with respect to transactions executed [with LJM entities].” Fastow apparently followed the thrust of Mintz’s advice. In the memo, Mintz told Fastow, “Michael [Kopper, who had acquired the initial interest in Chewco] will no longer be an employee of Enron or maintain any contractual relationship with the company going forward.” In July, the Powers report states, Kopper resigned from Enron and bought out Fastow’s interest in LJM2. The Powers report specifically notes the role advisers played in the proxy disclosure decisions, which in hindsight set Enron up for its subsequent surprise disclosure that triggered the dramatic response from creditors and the bankruptcy of the company. “The disclosure decisions concerning Fastow’s interest in LJM transactions were made without the key participants knowing the amount — or even the magnitude of the interest in question. This is because no one — not members of Senior Management (such as Lay, Skilling or Causey), not the Board, and not Vinson & Elkins — ever pressed for the information and Fastow did not volunteer it,” the report concludes. For Fastow and Enron, the board investigators conclude, the economic times made all the difference. “During the rising stock market, analysts and investors generally ignored Fastow’s dual roles and his conflict of interest,” the report states, “but when doubts were cast on Enron transactions … this appearance became a serious issue.” When Fastow talked to Vinson & Elkins lawyers on Aug. 27, 2001, the firm’s managing partner Dilg showed up, even though he hadn’t attended many of his partner Hendrick’s chats with other Enron employees for the firm’s investigation. In retrospect, Dilg made a wise move. The interview was among the last where Fastow discussed in detail with outsiders his controversial role at Enron. At that time, even before federal prosecutors had turned their attention to him and others at Enron, Fastow seemed to make the case that his advisers and his lawyers had blessed his business tactics. He told the Vinson & Elkins lawyers that he believed all the LJM deals received adequate review, particularly because they were looked at by a lawyer who later prepared Richard A. Causey, who was executive vice president and chief accounting officer, for his reviews. In other words, two professionals with adequate knowledge looked over his shoulders. But in making his case to Vinson & Elkins, Fastow may have exposed a disconcerting level of disingenuousness. He mentioned that Mordaunt, when LJMI was formed, had prepped Causey. Significantly, he didn’t mention to Vinson & Elkins, however, that she had also received a $1 million return later for a $6,000 investment.

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