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Enron’s Fastow Worked Behind Scenes

February 7, 2002

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HOUSTON (AP) _ Chief financial officers are usually called upon to tout a company’s financial strength and to tantalize Wall Street about the potential for future profits. Enron Corp.’s Andrew Fastow was different.

Occupying a position created especially for him, Fastow worked behind the scenes, crafting complex transactions that helped puff up Enron’s value on paper while shielding its liabilities from the public.

Now he finds himself playing a leading role in the various investigations into the company’s collapse.

There is a debate about just how much blame Fastow deserves as the architect of the partnerships used to disguise Enron’s financial health that are now at the center of the discussion surrounding Enron’s demise. The Securities and Exchange Commission is investigating the matter, yet Fastow so far has offered no explanation of his own.

He’s expected to invoke the Fifth Amendment against self-incrimination when he faces Congress on Thursday. A request by his lawyer that he not be required to appear has been rejected.

Former Enron employees who interacted with Fastow describe an executive intrigued by creative thinking yet impatient with those who didn’t see things his way.

To be sure, arrogance was neither unique nor a drawback among the elite at Enron, and former insiders said it was likely Fastow’s aggressive and inventive approach to structuring deals that most appealed to Jeffrey Skilling, the former chief executive.

After CFO magazine showered Fastow with the ``Excellence Award for Capital Structure″ in 1999, Skilling told the publication: ``Andy has the intelligence and the youthful exuberance to think in new ways.″

It is hard to believe, several former employees said, that Fastow created the partnerships that enriched him by $30 million without the blessing of Skilling, who has professed ignorance about much of what went on under his watch in the wake of Enron’s implosion. Skilling also is to appear before a congressional committee Thursday, but has yet to indicate he will invoke the Fifth Amendment.

``Nothing got done that Jeff Skilling didn’t know about,″ said Jim Schwieger, a former vice president in Enron’s natural gas trading division.

Fastow refused to be interviewed. A spokesman said Enron’s board of directors, senior managers and auditors were fully aware of the deals he set up between Enron and hundreds of partnerships.

People who know Fastow outside of the office describe a generous, soft-spoken father of two sons who married into a wealthy Houston family, but who is not the social climber his critics paint him as.

Fastow grew up in suburban New Jersey, attended Tufts University and went to Northwestern University’s business school. Before joining Enron he worked at Continental Bank in Chicago.

The Fastows live in an upscale suburb of Houston and, despite the collapse of what he built up at Enron, the family continues to build an 11,500-square-foot home in the exclusive River Oaks neighborhood.

Fastow is a patron of the arts, prominent in the local Jewish community and a contributor to various organizations, including the Interfaith Ministries of Greater Houston and the United Way.

``Knowing Andy, it is hard to believe he in any purposeful way didn’t conduct himself in a proper manner,″ said Rabbi Shaul Osadchey, who has been friends with Fastow since presiding over his marriage 17 years ago.

``I don’t think this is a matter of hubris,″ the rabbi added. ``People sometimes make bad business decisions. That’s not a crime.″

The findings of an internal investigation of the partnerships tell a different story.

``Fastow and other Enron employees received tens of millions of dollars they should not have received,″ the report said. ``These benefits came at Enron’s expense.″

In one transaction the internal investigators described as ``particularly troubling,″ the Fastow Family Foundation received a $4.5 million return on a $25,000 investment in just two months. Other employees were also enriched up to $1 million each after investing less than $6,000 in transactions Fastow orchestrated ``unbeknownst to virtually everyone at Enron,″ the report said.

The partnerships had names like LJM (the first initials of Fastow’s wife and two sons) and Chewco (after the Star Wars character Chewbacca). They hid hundreds of millions of dollars in debt and inflated profits by $1 billion between the fall of 2000 and 2001, according to the report.

The scheme began to unravel on Oct. 16 when Enron took a one-time charge of $544 million related to transactions with one of the LJM partnerships. Combined with a $1.2 billion reduction in shareholder equity, Enron’s credit rating and stock price soon crumbled, triggering payment of billions of dollars in debt linked to various partnerships.

Fastow, whose fancy financing played a key role in Enron’s ascent to No. 7 on the Fortune 500 list last year, was shown the door Oct. 24. On Dec. 2, Enron made the largest bankruptcy filing in U.S. history.

A spokesman for Fastow said he still owns more than half his Enron holdings and hasn’t sold shares since November 2000. From October 1998 through that date, Fastow sold 561,423 shares for $30.4 million.

If Fastow’s low profile in the business community seemed odd at the time, it makes perfect sense in hindsight, said Gordon Howald, an analyst Credit Lyonnais Securities in New York.

``He was never visible to (Wall) Street probably because if people were to begin asking him questions he knew things that could get Enron into trouble,″ Howald said.

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