Defense Attacks Fastow's Memo

Handwritten Document Refers To Enron Deals

HOUSTON, March 9 -- The defense in the Enron Corp. trial raised doubts Thursday about a key piece of evidence -- a written agreement that former chief financial officer Andrew S. Fastow said documented improper deals that were at the heart of the fraud that resulted in the downfall of the energy trading company.

A lawyer for former chief executive Jeffrey K. Skilling spent six hours in attack, seeking to convince jurors that many of the deals were approved by lawyers and accountants and that Fastow had little documentary evidence to back up his claims, save for his word and a questionable handwritten memo.

Skilling and former chairman Kenneth L. Lay face multiple fraud charges that could send them to prison for the rest of their lives if they are convicted.

Fastow testified earlier that his wife found a three-page, handwritten document chronicling the arrangement during a visit to the couple's safe deposit box in April 2004. He said he turned it over to his lawyer a month later. In a series of questions, Daniel M. Petrocelli implied that the memo was created by Fastow during that time to curry favor with the government as his wife was negotiating a plea deal on personal income tax charges. She later served a year in prison.

"Isn't what's going on here is that a document surfaces for the very first time in April 2004, at a time when it's really important to provide some ammo to the government?" Petrocelli asked. But Fastow flatly denied what he called Petrocelli's "implication."

The memo, known as Global Galactic because it covered a series of improper deals that guaranteed Fastow's partnership would not lose money in exchange for helping Enron unload underperforming assets, is important to the government's case as one of the few pieces of paper to make reference to the secret deals.

"I know they incriminate me, and I believe they incriminate others as well," Fastow said. He went onto say the others included Skilling.

The defense also focused on a particular side deal to repurchase a Brazilian power plant, the first of several of what Fastow called "bearhugs" between himself and Skilling. Fastow testified Tuesday that Skilling told him, "Don't worry. I'll make sure you're all right on the project. You won't lose any money."

"You're saying those 14 words took an otherwise appropriate transaction, properly accounted for, and destroyed the bona fideness of the transaction?" Petrocelli asked.

Yes, Fastow said.

Petrocelli highlighted the terms of the formal written contract under which Fastow's partnership bought the Brazilian plant, called Cuiaba. The contract contained a clause suggesting it trumped all prior understandings, including oral pacts. That meant the so-called side deal didn't count, he argued.

"Mr. Skilling told me I would get out of Cuiaba without losing money. I believe that voided the accounting, regardless of what all these pretty documents say," Fastow shot back.

The defense also underscored for the eight-woman, four-man jury an attempt by Fastow to bilk two large banks that had invested with him in the Brazilian plant. "I was trying to cheat my limited partners," Fastow said bluntly, drawing laughs from both Skilling and Lay.

Thursday was far more complex and intense than Fastow's first day of cross-examination, when he and Petrocelli clashed repeatedly.

At one point, as the defense lawyer sought to introduce a long list of names of people who vetted one partnership, Fastow asked, "Can I just say I believe you and accept it?

"I wish you would have done that two days ago," Petrocelli said with a laugh.

In contrast to some of the earlier stretches in this six-week-old trial, the defendants' families turned out in full force for Fastow's grilling on the witness stand. On Thursday, Skilling's wife, his ex-wife and two of his three children listened to testimony for several hours. Lay's wife, Linda, his sister and several other relatives appeared as well.

Lay's lawyer Michael W. Ramsey is scheduled to begin his cross-examination of Fastow Monday morning.