Courtroom testimony about you can hurt. But it's often the stuff that's in writing that can really kill you. In countless cases it has been egregious e-mails, malevolent memos, or other damning documents -- not testimony -- that has sent a defendant's case down in flames. In the federal prosecution of Kenneth L. Lay and Jeffrey K. Skilling for their role in the collapse of Enron Corp., that kind of documentary evidence has been lacking. Until, perhaps, now.
On Mar. 7 the world got its first look at the so-called Global Galactic agreement -- the closest thing to a smoking gun in the Enron saga. The three-page, handwritten memorandum, authored by former Enron Chief Financial Officer Andrew S. Fastow, allegedly documents the secret pacts that made the energy giant's numbers look deceptively good for so many years. The deals, the government claims, essentially went like this: Enron would sell underperforming assets to a partnership run by Fastow, claim the proceeds as operating income, and Fastow would then sell the assets back for a guaranteed profit. The agreement lists the terms of a dozen deals and appears to be initialed by Fastow and former Chief Accounting Officer Richard Causey. Fastow testified that he destroyed the original document but later found a copy in his safe deposit box.
While the document looks unimpressive -- indeed, it's barely legible in some places -- the Global Galactic agreement appears to support a key plank of the Justice Dept.'s argument: that Enron was manufacturing earnings through accounting games. When Fastow took the stand on Mar. 7, he testified that Skilling knew about the side agreement that he had inked with Causey and fully supported it. Fastow said Skilling told him to use the partnerships to "give me all the juice you can" on earnings. "We were using this to inflate our earnings," Fastow testified.
In his cross-examination, Skilling's attorney, Daniel Petrocelli, hammered away at Fastow's credibility, portraying the former CFO as a thief who acted without his bosses' knowledge. Neither Skilling's nor Lay's name is on the Global Galactic agreement.
The case's outcome may depend on whose version of the Global Galactic story the jury finds most credible. Among the many questionable things that happened at Enron, the side deals between the company and Fastow have long been considered the most clearly illegal. If the jury accepts Fastow's testimony that Skilling knew about those dealings, then the odds of a conviction would appear to increase. And that fact that there is now a piece of paper supporting Fastow's version of events is likely to be a boost for the government. "It's very comforting to a jury that there's a corroborative document that was created at the time the crime was committed that fits the testimony," says Stephen M. Ryan, a former prosecutor now at Manatt, Phelps & Phillips in Washington. "It makes the defense case more difficult."
By Michael Orey