In some of the most explosive and combative testimony to date in the trial of Enron Corp. founder Kenneth Lay and ex-CEO Jeffrey Skilling, ex-CFO Andrew Fastow testified last week that Skilling used off-the-book partnerships to illegally revise earnings beginning in 1999, and told jurors that Lay not only knew about the financial shenanigans before the company dissolved into bankruptcy but also actively took part in deceiving shareholders and the news media.

Fastow, 44, has remained publicly silent since he pleaded guilty in January 2004 (see NGI, Jan. 19, 2004). Initially pleading not guilty to more than 90 crimes, Fastow changed his mind when his wife Lea was charged with tax fraud in an Enron-related case. In an intricate deal with prosecutors that arranged for his wife to plead guilty to one count of tax fraud — for which she spent one year in federal prison — Fastow pleaded guilty to two counts of fraud, agreed to a 10-year prison term and forfeited about $24 million, including homes in Galveston, TX, and Vermont.

Fastow has remained out of the spotlight, but last Tuesday he captivated U.S. District Judge Sim Lake’s Houston courtroom, offering clear and concise answers in his first day of testimony. Dressed in a gray suit and colorful tie, his hair now completely gray, Fastow calmly described his role as CFO for Enron, a post he reached at age 38. He had been hired in 1990 by Skilling.

“I had fiduciary responsibility to the shareholders,” Fastow told prosecutor John Hueston in describing his job duties. “That means I’m supposed to take actions that are in the best interest of the shareholders.”

In response to questioning later in the week, Fastow said that the lies and acts of deception that he and the other the senior executives at Enron perpetrated were “reprehensible.”

On Tuesday, Hueston wasted no time in getting Fastow to describe the partnerships, or special purpose entities (SPE), that Fastow ran and partly owned, known as LJM 1 and LJM2 — named for the initials of Fastow’s wife and two young sons. The initial $15 million LJM1 SPE was approved by Enron’s board of directors, including Lay and Skilling, to help Enron meet financial targets, according to Fastow.

Enron’s expectation for LJM was “to engage in deals primarily with Enron to make Enron meet their numbers,” Fastow told the jury. The SPE, he said, was a “rather unusual arrangement,” designed to “mask potential losses of hundreds of millions of dollars.”

Under the SPE arrangement, Fastow was allowed to personally profit from LJM1, making money from the transactions LJM did with Enron, as well as from any rise in Enron’s share price. The SPE, structured by Fastow, was designed to allow the CFO to make money from fees regardless of whether the partnership made money or not. He also invested $1 million of his own money into the first LJM partnership, which Skilling used as a selling point to the board.

Hueston asked if there was any personal risk to investing in LJM.

“I considered there to be almost no risk to me,” Fastow told jurors. “Not in my mind. I thought it was pretty much pure upside.”

Skilling, he said, was unsure how LJM should be disclosed to Enron’s investors. Skilling was concerned, he said, that as a top executive with Enron, Fastow’s role in running LJM would be scrutinized. “If dissected, people would see what the purpose of the partnership was, which was to mask, potentially, hundreds of millions of dollars in losses,” Fastow testified.

But Fastow said Skilling lent his support, telling the board Fastow “has skin in the game,” referring to his $1 million investment. According to Fastow, Skilling told the board the biggest risk “was the Wall Street Journal risk,” referring to scrutiny that might come if the actual nature of the deal was investigated.

The LJM1 partnership worked well, he said, and Enron was able to boost its earnings in 2Q1999 by selling off an investment called Rhythms Net to the SPE. Fastow then approached Skilling and suggested forming a second, larger partnership.

“Get me as much of that juice as you can,” Fastow recalled Skilling telling him about forming a second partnership, implying that the equity raised was used as “juice” for Enron’s earnings. “The juice was the equity, but we were using the equity to juice the earnings, to increase the earnings of Enron Corporation so we could report the numbers we wanted to report.”

How much “juice” was there? Hueston asked. Fastow answered that by May 2000, LJM2 had raised $386 million in capital commitments.

Why didn’t Enron sell off its unprofitable assets through other legitimate financial institutions? Hueston asked.

“We were using this to inflate our earnings, and I don’t think we wanted to show people what we were doing.”

LJM2 was formed in 1999, and Fastow ultimately raised more than $386 million of capital commitments for it.

What was the plan for LJM2? “It was to engage in transactions primarily with Enron,” Fastow said. “The nature of the transactions would be for Enron to make its numbers, meaning to make the financial statements look the way they wanted them to look.”

By the end of 1999, Fastow testified that six new deals were completed by LJM2, which propped up the company’s year-end 1999 earnings. Just for managing LJM2, Fastow received $8 million in fees the first year. Fastow also had about 10 Enron employees working on the deals. However, Fastow did not consider every transaction worthwhile. One particularly bad deal, he said, was pushed by Skilling.

Cuiaba was a poorly performing power plant in Brazil that Enron wanted to sell. When it could find no buyer, Skilling told Fastow to have LJM buy it.

When asked by Hueston why he didn’t want LJM to buy the plant, Fastow replied, “I don’t know how graphic my language is allowed to be.” Pushed by Hueston, Fastow said, “I told him it was a piece of s–t, and no one would buy it.”

Hueston asked Fastow why it was such a bad deal. Fastow laughed and said, “First of all, it was in my opinion.” But Skilling told Fastow not to worry about taking it over, he recalled. “He told me don’t worry, you’ll be all right on the project…, you won’t lose any money…and that eventually LJM would get its money back,” Fastow told jurors.

LJM bought a 13% stake in Cuiaba for $11 million. After the transaction was completed, Enron took Cuiaba off its books and recorded a natural gas supply agreement related to the plant as $65 million in earnings for year-end 1999.

Fastow said he knew he would make money by buying the plant, but he wanted Skilling to realize what he was doing.

“I was going to solve this problem, and I wanted Mr. Skilling to recognize just how big a favor I was doing so it would help me out later on,” Fastow testified. “I thought I was being a hero for Enron. It would help Enron make its numbers, and if Enron made its numbers, its stock would go up. I was a big stockholder. If I helped Enron make its numbers, I get a bigger bonus. At the time, it looked like I was helping myself and helping Enron.”

Fastow also talked about Southampton, another SPE set up with other Enron employees, including then-Treasurer Ben Glisan Jr. (Southampton was named after the subdivision in Houston where Fastow lives.)

Fastow testified he needed to unwind a transaction that required Enron to pay a fee to the banks that were LJM’s limited partners. One of the banks was willing to accept a $1 million fee, but Fastow said he told former Chief Accounting Officer Richard Causey the smallest fee a bank would accept was $20 million.

Fastow was given the $20 million for the fee, and he testified he transferred the extra $19 million into Southampton. Fastow said he then set up a charitable foundation to hold the $4.5 million he personally earned in the illegal transaction. The foundation, he said, was set up to boost his family’s stature in Houston. He also asked his father to run the foundation for $50,000 a year.

“I lied to Enron,” Fastow said of the $19 million. “Those should have been funds that Enron was able to keep.”

Describing another partnership, RADR, Fastow said Enron wanted to sell some wind turbines to a third party, but it still wanted to control the assets. So, he asked the domestic partner of Enron associate Michael Kopper to act as the third party. If Kopper and William Dodson, his partner, had been married, Dodson would not have been allowed to be a legal “third party.” However, Texas law does not recognize same-sex unions.

“Under Texas law, Mr. Dodson wasn’t recognized as his [Kopper’s] spouse,” Fastow said. “Technically, it worked under the law.”

Fastow testified Skilling thought the third-party arrangement “was great. He had a little laugh that there was this hole in the law.”

Fastow then described how he ensured his financial fortunes by using his wife and his sons as financial conduits in the RADR deal.

“I directed my wife to make a loan to Mr. Kopper to invest in the RADR transaction,” Fastow testified. The loan was repaid at a high interest rate, returned to the Fastows through a series of checks Kopper wrote to Fastow’s wife and children, which were characterized as gifts. Shown copies of the checks by Hueston, Fastow forced back tears, nodding and replying that they were the checks his family was given illegally. Fastow also nearly broke down when Hueston questioned him about his guilty plea.

“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 testified. He still has 10 civil lawsuits pending against him, which could amount to “millions, maybe billions of dollars.”

After lunch, Hueston continued questioning Fastow about his wife Lea’s involvement in illegal Enron deals. Although she pleaded guilty, Fastow said his wife was innocent.

Choking back tears, Fastow said he lied to his wife, which led to her spending one year in federal prison.

“You involved her in one of your deals?” asked Hueston. “Yes,” Fastow answered. “And because of your efforts, you caused her to go to jail, right?” Hueston asked. “Yes,” Fastow said, nearly crying.

Fastow testified he wanted to provide evidence that his wife was innocent at her trial, but he could not convince presiding U.S. District Judge David Hittner to change the trial date to enable him to do so. Lea Fastow, who is a member of the prominent Weingarten family, pleaded guilty in 2004 to one misdemeanor count of filing a false joint tax return in 2000 (see NGI, May 10, 2004). She served one year in federal prison in Houston, was sent to a halfway house in June 2005 and was finally released in July 2005.

“I had exculpatory information that would help to prove her innocence,” Fastow told jurors, as he visibly struggled to remain calm. “But if her trial started before mine it would make it impossible to do…without incriminating myself.”

Fastow testified he worried that he and his wife would be in prison at the same time and would be unable to take care of their young sons.

“In short, I misled my wife,” he told jurors. “I led her to believe that these checks were gifts from Mr. Kopper and Mr. Dodson…I told her accountants and her attorneys that these checks could be treated as gifts, and that’s the reason they were prepared that way.” He said his wife “did not conspire. I conspired with Michael Kopper to do this.”

Fastow mostly referred to Skilling and Causey as being in on his illegal transactions. But in the late afternoon, Fastow also described the Raptors, a set of transactions that Lay approved, he said. Enron owned stock in several smaller companies, and when the value of those companies’ shares changed, Enron was required to reflect the gains and losses in quarterly reports.

Like many companies, Enron entered into hedge transactions to limit potential losses in its investments. Under Securities and Exchange Commission accounting rules, the other party to the hedge has to be independent. However, Fastow described how he engineered a series of transactions known as the “Raptors,” that made the hedging party appear independent — when it fact it was not.

Fastow testified he described the Raptors to Skilling as “perpetual motion machines.” With Skilling’s approval, the Raptors then were presented to Enron’s management committee, which included Lay and Skilling. Everyone, including Lay, thought the Raptors were a good idea, Fastow testified.

Enron provided $537 million in stock and options to create the Raptor subsidiary Talon LLC, while LJM2 contributed $30 million in cash. The investment from LJM2 was key because it met the threshold for Enron’s treatment of Talon as an independent third party. However, because LJM2 was controlled by Fastow, Enron promised Fastow he would recoup his investment with substantial profit.

As its hedge, Enron paid Talon $41 million for the option of making Talon buy 7.2 million shares of Enron stock at a future date. Talon then paid LJM2 $41 million in August 2000, which covered its initial investment and another $11 million. The prosecution argues that LJM2 never had any money at risk, and Enron was the sole investor.

“At Enron, the culture was, and the business practice seemed to be, to do transactions that maximized the financial reporting as opposed to doing transactions that actually maximized value,” Fastow testified. “They were paying money to be able to report higher earnings.”

Lay Implicated

The most devastating testimony against Lay came on Wednesday, relating to the period of time prosecutors contend Lay misled investors. In August 2001, shortly after Skilling had resigned from the company and Lay had assumed the CEO/chairman role, Fastow testified there were a lot of problems facing the company. He recounted a meeting on Aug. 20, 2001, in which Lay and other top Enron executives discussed issues associated with Enron’s 3Q2001 projections.

“There was a pretty big hole in the earnings,” Fastow testified about 3Q2001. “We were projecting earnings much lower than Wall Street was expecting at this point.”

Fastow reiterated a long list of problems Enron was having in the quarter, including a $1.2 billion “accounting mistake” related to Fastow’s Raptor SPE, which was being unwound and written down at the end of the quarter. Enron also had “large reserves issues,” and it was “taking a tremendous amount of risks with accounting.” Lay was aware of those problems, Fastow noted.

He testified Lay was told Enron’s international assets were overvalued and its investment partnerships faced losses that could force huge write-offs, reducing earnings. Fastow also told jurors he told Lay on Aug. 16, 2001 that Enron should consider a major restructuring because it had to recognize at least $5 billion in potential losses on a group of assets that “would eventually come home to roost…I said even if we’re smart and we don’t make a mistake and earn $1 billion a year, it’ll take us five years to earn our way out of that problem.”

However, in an interview that same day with BusinessWeek magazine, Lay was quoted as saying Enron “is probably in the strongest and best shape it has ever been in.” After Skilling’s departure, Lay also presided over a conference call with investors and analysts. On the call, played earlier in court, Lay said there were “no other shoes to fall” at Enron. He also told analysts there were no financial problems at the company.

Also, in a Sept. 26, 2001 electronic message to employees, Lay called Enron “fundamentally sound. The balance sheet is strong, our financial liquidity has never been stronger and we have record earnings and results.” He also told employees the company’s historic growth made its shares “an incredibly cheap stock.”

Asked about the statements by Hueston, Fastow replied, “I think most of the statements in there were false,” Fastow told jurors. “We had some shoes that fell in the third quarter.”

Hueston asked if Lay had given a “clear” picture of Enron to analysts. “I don’t think so,” Fastow said.

In the following weeks, a group of Enron executives, including Lay, Fastow and Enron North America CEO Greg Whalley, traveled to New York City to talk to financial analysts, Fastow testified. Following that meeting, the group was scheduled to go to Boston for additional meetings. However, Whalley decided to return to Houston, Fastow recalled.

Fastow said he asked Whalley why he was returning to Houston. “He said, ‘If I went to Boston, I’d have to lie too much,'” Fastow testified.

“What was your reaction?” Hueston asked. “I was stunned,” Fastow said. But he recalled, “It was what Mr. Lay was saying, it was what the company was saying, and I was trying to keep up with the company as well.”

“Was it a lie?” Fastow responded, “It was a lie.”

In the fall of 2001, the Wall Street Journal submitted a list of 25 questions to Enron concerning the SPEs. The questions concerned how the off-balance-sheet transactions were set up, and they questioned how much Fastow was making on the side. Fastow said he met with Lay and company spokesman Mark Palmer to determine how to respond. Instead of answering the questions, Fastow said, Lay issued a one-paragraph statement about how thoroughly and vigorously the LJM SPEs were reviewed by lawyers and accountants.

Hueston asked if the questions from the Journal related to information the shareholders were entitled to know. Fastow said they did.

When it was time for Enron to report its 3Q2001 earnings in mid-October 2001, Fastow testified, Lay was presented with growing evidence of internal problems at Enron. However, Fastow said Lay decided to call a $1.2 billion equity investment loss in the third quarter of 2001 “nonrecurring,” even though a gain on the same holding was earlier characterized as “recurring.” By switching to nonrecurring, Fastow said Enron might convince outsiders the loss was insignificant.

“I thought that was an incorrect accounting treatment,” Fastow testified.

The quarterly earnings were released on Oct. 16, 2001 (see NGI, Oct. 22, 2001). By Oct. 23, Fastow said Enron’s suppliers were refusing to trade with the company because they feared a bankruptcy. Fastow and Treasurer Ben Glisan Jr. then went to Lay to tell him about the problems.

“I said I thought this was a death spiral, a serious risk of bankruptcy,” Fastow testified. “I said the majority of trades being done were to unwind positions.” The next day, Fastow was fired (see NGI, Oct. 29, 2001).

Cross-Examination Begins

Once his direct testimony was completed, Fastow went toe-to-toe with Skilling lawyer Daniel Petrocelli in what was at times a loud and blistering cross-examination. Petrocelli attacked Fastow’s character, and quickly launched into statements Fastow made, including one in which he referred to himself as a “hero for Enron” by helping the company hide losses and boost its balance sheet.

“Within the culture of corruption Enron had, a culture that rewarded financial reporting rather than rewarding economic value, I believed I was being a hero,” said Fastow. “I was not. It was not a good thing. That’s why I’m here today.”

“Were you a hero when you stole from Enron, yes or no?” asked Petrocelli. “No I was not,” Fastow responded. “Were you a hero to Enron when you cheated and defrauded Enron’s shareholders?” Fastow: “That’s when I believed I was being a hero. But that’s why I’m here today.”

Petrocelli asked Fastow if he had ever deceived Lay, Skilling, friends or family. “Yes,” Fastow replied. Petrocelli asked if he had deceived the court. Fastow said he had not.

“You must be consumed with an insatiable greed — is that fair to say?” Petrocelli asked.

“I believe I was extremely greedy, and that I had lost my moral compass, and I’ve done terrible things that I very much regret,” Fastow responded.

But Petrocelli told the witness that a day earlier, “you used a kinder, gentler word for your greed. I think you used the word ‘opportunistic.’ Do you recall that?”

“Yes.”

“But when we get right down to it, we are talking about greed, greed, greed — greed for money. That is what drove you.”

“I was greedy, yes,” Fastow replied.

The two men engaged in a running war of words, with Fastow trying to talk about his deceit at Enron and how the defendants had collaborated with him, while Petrocelli kept returning to Fastow’s thievery.

“Let’s focus on your crimes,” Petrocelli said at one point. “Your private crimes that nobody knew about.”

Petrocelli worked his way through several of the transactions where Fastow had secretly pocketed money belonging to Enron. When he was done, he asked Fastow how much Skilling had made from the illegal transactions.

“As far as I know, zero,” Fastow replied. “Was it hard for you to say that?”

“Yes,” Fastow replied.

“Was it hard for you to say that because you don’t want the jury to think that Mr. Skilling is innocent?…You want the jury to believe that Mr. Skilling is consumed by greed as you are, right?”

“I didn’t say that, sir. You did…My answer to that question is, I spent a lot of time up here already saying that I stole from Enron. I did steal from Enron. We stole from Enron. That was why it was difficult for me when you posed your question to answer directly.”

“And who was the ‘we’?”

“Myself and other members of senior management of Enron,” Fastow replied. He said senior management “stole in different ways…What I’m saying is when you misrepresent the nature of your company, when you artificially inflate earnings, when you improperly hide losses, when you do things like this to cause your stock price to go up so you can sell your stock to cause yourself to make earning targets that otherwise you’d be unable to make so you get high salaries and bonuses — that is stealing…I stole one way, and I stole that way. All I’m saying is that we stole…We got large salaries. We got larger bonuses than we should, and we sold our stock and got millions of dollars that way.”

“We know you stole,” Petrocelli said, nearly shouting. “You stole a hundred different ways.”

“What I did was reprehensible,” Fastow said. “And it’s not easy to look at yourself and to recognize that about yourself and to admit it. And it took me a long time to do that. And some days…some days it’s still hard to do that. I’ve destroyed my life. All I could do is try to take what’s left, ask forgiveness, and be the best person I can be.”

Petrocelli suggested “when the history books were written” Fastow’s name would be associated with Enron’s collapse. Petrocelli suggested Fastow wanted to see Skilling’s name in those books. But Fastow didn’t back down.

“You know what I’d like written on that page? That I had the character to admit what I’ve done wrong…I can’t undo the past. I’m ashamed of the past. What I did was reprehensible. It’s not easy to look at yourself and to recognize that about yourself and to admit it. It took me a long time to do that. I’ve destroyed my life.”

On his final day of cross-examination Thursday, Petrocelli focused on Fastow’s Global Galactic agreement, considered a key piece of evidence against Skilling. The three-page document lists assets sold by Enron to LJM, one of the company’s special purpose entities run by Fastow, which allowed Enron to remove the poorly performing assets from its balance sheet. According to Fastow, the agreement lists the terms of about a dozen oral transactions between himself and Skilling. It is initialed by Fastow and former CAO Causey — the memo does not carry the initials of Skilling nor Lay.

While unimpressive in appearance — and barely legible in some places — the agreement supports a key argument by the Justice Department that Enron was manufacturing earnings through accounting tricks. Fastow’s handwritten copy is available at the Justice Department’s Enron website at www.usdoj.gov/enron/exhibit/03-07/BBC-0001/Images/EXH026-00046.PDF .

Petrocelli, who appeared amazed and disgusted by some of Fastow’s testimony last week, sarcastically called the Global Galactic memo a “smoking gun,” which mysteriously materialized as Fastow’s wife Lea was trying to bargain her way out of prison. Fastow testified he destroyed the original memo in the summer of 2001 after selling the LJM partnerships to his subordinate Kopper. However, Lea Fastow discovered a photocopy of the memo in early 2004 hidden in the couple’s safe deposit box at a Houston bank.

“What’s going on here is a document surfaces for the very first time in April 2004 at a time when it’s really important to provide some ‘ammo’ — to use your words — to the Enron Task Force,” Petrocelli said to Fastow. Petrocelli also noted Fastow’s account of the memo’s discovery contradicted the account originally given to federal investigators.

Bank records indicate Lea Fastow opened the box in April 2004, about four months after she and her husband were indicted. Fastow conceded under questioning that he did not turn the memo over to prosecutors for six weeks because the document was in a folder that sat on his desk at home for six weeks before he opened it.

“You think this incriminates Mr. Skilling?” Petrocelli asked.

“Among others, yes,” Fastow replied.

At the time a copy of the memo was found, it was “really helpful for the Enron Task Force to have new evidence,” wasn’t it? Petrocelli asked.

“I was obligated to turn over all documents related to Enron,” Fastow said. “When I discovered that document, I immediately contacted my attorney.”

Fastow, less animated and appearing tired after two long days of testimony, explained two specific transactions in which he said Skilling personally guaranteed LJM would not lose money by purchasing Enron assets. In September 1999, LJM agreed to buy Enron’s interest in a Brazilian power plant after Skilling told him, “don’t worry, I’ll make you all right on this project.” Fastow called the deal a “bear hug,” which he said was strong oral assurance — without a written guarantee.

Skilling, said Fastow, offered LJM another bear hug in December 1999 when LJM agreed to buy some Enron power barges moored off the Nigerian coast. Fastow said Skilling personally told him Enron would buy back the barges after the financial reporting periods had lapsed, and he told Fastow the partnership would not lose any money.

Petrocelli asked Fastow if he had any written records of Skilling’s involvement in the transactions.

“He didn’t give me a document,” Fastow said. “He didn’t say, Mr. Fastow, here’s a coupon for a bear hug.”

Fastow told jurors he briefed Causey on all of the transactions on the Global Galactic memo, and he said Causey told him he in turn reviewed the transactions with Skilling. But Fastow conceded he had no proof that Skilling was aware of the transactions.

“I believe the only risk I was taking was whether Mr. Skilling would live up to his obligation to make sure LJM was taken out of the deal without a loss,” Fastow replied. “I don’t recall Mr. Causey saying he went over every term of every agreement with Mr. Skilling… My understanding was that Causey had reviewed these transactions with Mr. Skilling, and Mr. Skilling agreed to them.”

“You made no notes of these conversations?” Petrocelli asked.

“I don’t recall any,” Fastow replied.

“If you really wanted to be sure Mr. Skilling was on board with these items, you could have taken the 60 seconds to walk over to his office, couldn’t you?” Petrocelli asked.

“I suppose so, but it never dawned on me it would be necessary to do so,” Fastow said. “You’re right, I could have gone to Mr. Skilling, but I went to Mr. Causey.” Fastow told the jury, “We had side agreements… That’s how we did business. This was a list of side agreements after the agreements had been entered into… Because the list was getting long, this was my way of keeping track of it, and Mr. Causey, he was keeping track of it the same way.”

“You thought these three pages were the smoking gun didn’t you?” Petrocelli asked.

“I know they incriminate me, and I think they incriminate others as well,” Fastow replied.

“By others, you mean Mr. Skilling, right?”

“Yes, among others.”

Questioned again about the Nigerian power barge transaction, Fastow testified LJM reluctantly took the barges, which he considered a poor investment, so that Enron could take them off its balance sheet and appear healthier.

“I wouldn’t have done it without a bear hug” from Skilling, Fastow said.

While Skilling apparently gave Fastow a bear hug on the transaction in December 1999, Fastow in turn gave a bear hug about the barges to investment banker Merrill Lynch, promising several company executives he would buy the barges back in six months time at a hefty profit (see NGI, Sept. 22, 2003; April 25, 2005). According to prosecutors, then-Enron Treasurer Jeffrey McMahon approached Merrill Lynch about creating the partnership with LJM. The transaction allegedly was set up to help Enron show a profit on its books in 1999.

To ensure the deal would occur, prosecutors allege Fastow promised Merrill executives Enron would repurchase the barges at a profit within six months. Enron sold an interest in the barges to Merrill for $28 million, which enabled Enron to book a $12 million profit for 1999. In the indictment, there is text of an e-mail by a Merrill executive, which indicates Fastow phoned another Merrill executive and “promised to pay us back no matter what.”

“You were not relying on any bear hugs when you decided to acquire the interest of the barges from Merrill Lynch?” Petrocelli said.

“No sir,” Fastow replied. “In my mind I still had the bear hug [from Skilling] in December of 1999.”

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