Fastow: The Financial Wizard Tied to Enron's Fall
"And in one instance, he invested $25,000 in
Southampton Place, a partnership that in a matter of two
months made $4.5 million from a deal with Enron, the
special report said. "
The New York Times
February 6, 2002
THE FINANCE OFFICER
By DAVID BARBOZA and JOHN SCHWARTZ
HOUSTON, Feb. 5 - Before
the financial shell games;
before Chewco, Raptor and LJM;
before the partnerships that
earned him $30 million, Andrew
S. Fastow had his first setback at
the Enron Corporation
The setback came in 1996, when
Mr. Fastow, a rising young star in
corporate finance, was nearly
fired for the poor job he did
running a retail unit that aimed
to put Enron into competition
with local utilities around the
country.
Mr. Fastow, whose surname
rhymes with how, was simply out
of his element among the
intricacies of the retail market,
colleagues said and his
spokesman, Gordon Andrew,
acknowledged. Yet while Enron
was notorious for its cutthroat
corporate culture, its
succeed-or-leave ethic, Mr.
Fastow had enough influence to
return to his old department,
finance.
"What the guy knew was
numbers and finance," a longtime
colleague said. "He knew how to
close a deal. No one did that
better than Andy."
Today, investigators think that
Mr. Fastow's financial wizardry,
his ability to wrap the company's
assets and debts into complicated
off-balance-sheet deals, was a
central cause of Enron's undoing.
What Mr. Fastow presented as an arrangement intended
to benefit Enron, according to a report released on
Saturday by a special committee of the board, "became,
over time, a means of enriching himself personally, and
facilitating manipulation of Enron's financial statements."
No one yet knows how much of the blame for Enron's
collapse should fall upon Mr. Fastow. On Thursday, Mr.
Fastow, 40, a father of two who was Enron's chief financial
officer until he was forced to resign in October, is
expected to invoke his Fifth Amendment right rather than
give potentially self- incriminating answers to questions
from members of Congress.
The crucial question is whether Mr. Fastow was the
mastermind behind Enron's most suspect financing deals.
Or was he, as Mr. Fastow has maintained through a
spokesman, merely doing, with the board's knowledge,
the bidding of his superiors at Enron, the former chief
executives, Kenneth L. Lay and Jeffrey K. Skilling?
Even before Mr. Fastow's appearance on Capitol Hill,
Representative James C. Greenwood, Republican of
Pennsylvania, called him the "Betty Crocker of cooked
books." And today, in one Congressional hearing, William
C. Powers Jr., an Enron director who led the committee
that wrote the internal report, said Mr. Fastow had been
plagued by dual loyalties. "Fastow couldn't mind the
store," Mr. Powers said, "because he was involved in the
transactions."
For now, Mr. Fastow is not telling his story. He declined to
be interviewed for this article, and he refused to cooperate
with a special investigative committee for Enron's board.
He also invoked his right against self-incrimination at a
meeting a few weeks ago with the Securities and
Exchange Commission.
But the portrait that is emerging of Mr. Fastow, from
interviews with former colleagues and details from the
Enron special report, is that of a brilliant, ambitious and
hard-charging executive who, it appears, grew obsessed
with using complex financing techniques to supercharge
Enron's earnings while inflating his own paycheck.
Besides the $30 million he made in the LJM
partnerships, Mr. Fastow earned a hefty salary and stock
options at Enron. In 1999 and 2000, he sold about $23
million in Enron stock.
It was not as if he needed the money, his friends say; his
wife, the former Lea Weingarten, is the heiress to a
Houston real estate fortune. But Mr. Fastow was adamant,
friends say, in his belief that the amount of money a
person made was the only meaningful measure of success
in business.
Even after Mr. Fastow retreated into seclusion last fall, he
continued building an 11,500-square-foot house in
Houston's wealthy River Oaks neighborhood. The Fastows
also maintain an art collection, some of which has been
displayed at the Contemporary Arts Museum and at the
Menil Collection, both in Houston.
He also had a prominent role in Houston's Jewish
community, taking charge of fund-raising for the city's
new Holocaust museum.
"The work was significantly greater than the reward," said
Bobby Lapin, a lawyer who has known Mr. Fastow for
years. "The person I know bears absolutely no relation to
the person who has been characterized, in some reports,
within the walls of Enron."
But the focus on Capitol Hill is not on good deeds.
According to the internal report, Mr. Fastow and a group
of other top executives secretly invested in a series of
partnerships that benefited from swapping assets with
Enron. Mr. Fastow used some of those partnerships to
conceal losses at Enron. He used others to inflate profits,
by about $1 billion in a 12-month period in 2000 and
2001. And in one instance, he invested $25,000 in
Southampton Place, a partnership that in a matter of two
months made $4.5 million from a deal with Enron, the
special report said.
That transaction, and many others, were never disclosed
to Enron's directors, the report said. The $4.5 million
would eventually reach Mr. Fastow through a family
foundation he had set up as a charity.
The collapse of Enron is a dramatic reversal of fortune for
Mr. Fastow. Until last August, when Mr. Skilling resigned
as chief executive, Mr. Fastow was at his side constantly, a
crucial player in winning Enron acclaim as one of the
world's most innovative companies.
He arrived at the company in 1990, at age 29, a
handsome, talented and ambitious man who would
eventually assume the job of chief financial officer in 1998
at the age of 36.
A graduate of Tufts University and the Kellogg School of
Management at Northwestern, Mr. Fastow was helping to
refashion a gas pipeline company into something more
akin to a Wall Street trading house.
Those who knew Mr. Fastow at Enron described a man
with twin personalities. They say he could be charming
yet aggressive, quiet yet mercurial, and philanthropic yet
bent on accumulating the trappings of wealth.
"He was very smart and very good at what he did," one
former executive said. "He could be nice, but he could also
be quite volatile and short- tempered. He didn't have a lot
of patience with people who weren't as smart as him."
Andrew Stuart Fastow was born in Washington but grew
up in New Providence, N.J., the son of a buyer for
supermarkets and department stores. His career started
in Chicago in the 1980's, at Continental Bank
(news/quote), where he worked on "troubled loans," and
more complicated deals, like leveraged buyouts.
At Enron, he started by trying to arrange financing for Mr.
Skilling's innovative plan, the creation of a "gas bank" that
would help struggling energy companies by providing
them with loans in exchange for their oil and gas reserves,
which Enron could hedge and trade against in its growing
derivatives unit.
Enron later began supporting energy producers by
creating partnerships that allowed the company to keep
the debt off the balance sheet. The first of those
partnerships was named Cactus.
By 1993, the partnerships Mr. Fastow helped set up were
so successful that Calpers, the California Public
Employees' Retirement System, approached Enron about
a joint venture. The partnership was called JEDI, or the
Joint Energy Development Investments.
Later, there were hundreds of other partnerships, with
names like Obi 1, Chewco and Raptor.
In recent years, as Enron pushed to build power plants
and to develop new markets, the company needed huge
amounts of capital, and partnerships were one way to pay
for the projects without having the debt accumulate on
Enron's balance sheet.
In 1999, CFO magazine honored Mr. Fastow for creating
an innovative financing structure. In a rare interview, he
told CFO that he would use off-balance-sheet transactions
to avoid weakening Enron's credit rating. And he would do
this while operating in the shadows.
"This guy was never anything but low profile," said John
E. Olson, an energy analyst at Sanders Morris Harris. "He
rarely, if ever, showed up at analyst meetings. He was a
loan consolidator."
By 1999, there were small fissures in Mr. Fastow's
labyrinthine financing empire. As early as 1997, Enron
had difficulty finding a partner to buy out Calpers's
interest. So, apparently to skirt disclosure rules, Mr.
Fastow proposed listing his wife's family as outside
investors. When he was rebuffed, Michael Kopper, who
worked under Mr. Fastow at Enron, was selected. Because
he was a lower-level employee, Enron would not have to
disclose his interest in S.E.C. filings. Mr. Kopper would
eventually make at least $10 million in profit from the
venture.
Later, Mr. Fastow dealt with partnerships that involved at
least four other Enron employees.
Mr. Fastow, the board report said, often played dual roles
as an Enron executive and a partner of LJM. Once, he
found himself at odds with Enron Broadband Services.
"Fastow's involvement caused great distress for the E.B.S.
team," the special report said. "They understood that their
job was to get the best deal possible for Enron but driving
a hard bargain for Enron drew the ire of Enron's C.F.O.'
Others, who worked closely with Mr. Fastow, say he was
not a rogue operator. "I think there's too much focus on
Andy," one longtime colleague said. Mr. Fastow, the
colleague said, did not do anything on his own.
Other colleagues say it is quite possible Mr. Fastow took
charge himself, that he got wrapped up in a series of
complex transactions that ultimately doomed him. And
even when it was all falling apart, Mr. Fastow was
reluctant to acknowledge what was happening.
In October, after the company was forced to restate its
earnings but before he left, Mr. Fastow appeared at an
employee meeting at the Hyatt Regency hotel here. His
remarks were brief and mysterious. "The Enron
Corporation's balance sheet," one employee recalls him
saying, "has never been in better health."
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