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By Laura Cohn The collapse of Enron vaulted two of its top execs to sudden national notoriety. There was Ken Lay, the erudite but apparently clueless founder. Then there was his hand-picked successor, hard-charging Jeffrey Skilling, who abruptly resigned before the scandal broke last year, leaving it all to Lay again. Skilling chose to testify before Congress earlier this year -- striking a defiant, remorseless pose. He testified that he knew nothing of the accounting irregularities that forced Enron into Chapter 11.
But there's also Andrew Fastow. When Enron's chief financial officer first appeared on Capitol Hill five months ago, he didn't make much of an impression. Back then, Fastow entered the hearing room at the precise hour, his lawyer in tow, and took his seat at the witness table. After a lawmaker asked him about the Enron debacle, Fastow -- relaxed and self-assured -- asserted his Fifth Amendment rights not to say anything that might incriminate him. He barely uttered a word after that.
ANIMATED PITCH. On July 30, Congress saw a much different Andrew Fastow. At a hearing by the Senate Permanent Subcommittee on Investigations, lawmakers watched a videotape of the then-CFO from September of 1999, pitching Merrill Lynch & Co. executives on the benefits of investing in one of Enron's off-balance-sheet partnerships known as LJM2, which investigators believe was a mechanism Enron used to hide its debt.
The video, which Merrill provided to the subcommittee in response to a subpoena, shows an animated Fastow giving the execs the hard sell. It was so animated that the audience in the hearing room couldn't resist chuckling at the video's contents -- with the exception of the Merrill representatives, who watched stone-faced.
The tape shows Fastow at the front of a conference room, urging the attendees to get in on the exclusive deal he was offering. At the meeting in New York, Fastow boasts that his inside knowledge of Enron's finances -- a point viewed by investigators as a major conflict of interest for a principal in an off-balance-sheet partnership -- make the investment a sure bet.
"Do I know everything that's going on? Do I have to sign off on every deal that goes in there? Yes," he says. "I'm in the unique position of not having the ownership or the responsibility or obligation to sell the assets, but I know everything about them, and I've been involved in their approval and maybe in their structuring."
FIVE YEARS OF TALKS. Fastow presented the Merrill executives with a list of reasons why they should buy in, including the fact that Enron and its investments "have significantly outperformed the market," that the partnerships' principals (including him) have "financial expertise," and that the investments they'd be buying into are "analyzed, operated, and structured by Enron."
The tape also shows a Merrill exec endorsing the pitch, telling the other participants in the meeting that the deal is the result of a five-year discussion that Merrill has had with Fastow. To that, Fastow joked that Enron Treasurer Ben Glisan at first had reservations about the partnership, saying: "I won't tell you what Ben's first reaction was four years ago." The Merrill Lynch audience on the tape -- and in the committee room -- erupted in laughter.
For Senate investigators, however, the tape is sobering evidence. Far from being a low-key operator, Fastow comes across as an aggressive advocate for Enron's partnerships with the Merrill bankers. It shows the firm's execs agreeing to go along with the deal. And it reaffirms the notion that Fastow set up the partnership essentially to have Enron do business with itself -- an arrangement that Subcommittee Chairman Carl Levin (D-Mich.) said is "unprecedented" in the view of most financial experts.
WITH REGRETS. Apparently the pitch worked. Capitol Hill sources say nearly 100 Merrill execs got in on the deal -- and none of them lost money. But these days, Enron's business practices have become the subject of intense scrutiny on Capitol Hill and in Houston, where a grand jury is investigating the company.
Merrill execs told Levin's subcommittee that, while they still don't think they did anything wrong, they now regret their decision to do business with Enron. G. Kelly Martin, president of Merrill's international private client group and the only Merrill executive who addressed the subcommittee, told lawmakers: "In hindsight, it would have been great to put this puzzle together and blow the whistle." Alas, it's a little late for that now. Cohn is a correspondent in BusinessWeek's Washington bureau