The Man Behind Enron's Deal Machine
When it comes to Andrew S. Fastow, the former Enron (ENE ) Chief Financial Officer, there's one thing those who worked with him agree on: He never appeared anything but supremely self-confident. Early in his career at Enron, when Fastow was just another bright young executive at the energy company, he bargained relentlessly to win a concession from a banker. Afterward, Fastow thanked him and said: "I'll remember that when I'm CFO."
Now, some see Fastow's cockiness as one factor behind Enron's collapse into the biggest bankruptcy in U.S. history. Certainly he wasn't the only top executive at Enron with that kind of attitude; the word most people use to describe the company culture is arrogant. But Fastow was one of the few whose aggressive tactics and overconfidence had the capacity to turn dangerous for the company.
If former CEO Jeffrey K. Skilling was the architect behind Enron's transformation from stodgy pipeline to high-tech trading powerhouse, Fastow was the trusted lieutenant who created the increasingly complex and unusual off-balance-sheet financing that fueled Enron's growth. He was also key in selling the deals to banks and institutional investors--sometimes with veiled threats and sometimes with sweet talk, say those familiar with his tactics. "He had a dual personality. He could be charming but he could also be irrationally mean," says one high-ranking insider.
As congressional investigators, the Securities & Exchange Commission, the Justice Dept., and shareholders' lawyers try to pin down the culprits in Enron's demise, Fastow, 40, has fast become one of the primary targets. He devised the LJM partnerships that triggered the controversy over Enron's accounting. His lawyers stress that the LJM partnerships, which Fastow ran and had stakes in, were approved by top management and the board. They also note that Fastow had no oversight of the accounting for these deals--that was the responsibility of another Enron executive who did not report to him. Fastow spokesman Gordon G. Andrew says that "Enron senior management had full knowledge of the LJM transactions." But some former and current Enron executives believe that Fastow may have hidden some aspects of the partnerships--including the involvement of other insiders--from Chairman Kenneth L. Lay and Skilling.
To many colleagues and bankers who knew him, it is easy to draw Fastow as one of the villains in this story. Insiders saw him as sometimes volatile and vindictive, determined to get to the top by pleasing Skilling. That meant putting together creative financial structures that ensured Enron could expand its business without adding too much new debt to the balance sheet or threatening its crucial credit rating. But Fastow's desire to follow Skilling's lead didn't end there. To build his new home in the exclusive River Oaks section of Houston--where construction continues despite Fastow's troubles--he hired the same architect Skilling had used, says a source familiar with the project. Some at Enron even came to believe that Fastow named his first son, Jeffrey, after Skilling--a contention denied by Fastow's wife through a friend. "I don't think Andy ever did anything that Jeff didn't tell him to do," says one former co-worker. Adds another high-level insider: "He wanted to make Jeff happy."
Former colleagues say Fastow's screaming, table-pounding style suited the aggressive Skilling. And Fastow's penchant for belittling co-workers certainly didn't hinder his climb to the top. "He loved to make people look stupid," says one Enron executive. "He seemed to do it most when he was in front of a lot of people." Some former co-workers say he often remembered personal slights or grudges when it came time for performance reviews; at Enron, the top managers could offer their evaluations of anyone, even those who didn't report to them.
The aggressiveness was all in service to Skilling's plan to transform Enron into a fast-growth, technology-oriented trading company: the company of the future. When Fastow joined Enron's finance group in 1990, the company, and the energy industry in general, were still considered backwaters for bright young MBAs. Skilling was determined to change all that; even then he was pushing Enron to take advantage of the newly deregulated energy business. Fastow clearly sensed opportunity. And his wife Lea hailed from the wealthy Weingarten realty and grocery family in Houston, so he was eager to move to Enron's hometown. Lea, an MBA who had also worked at Continental Illinois Bank in Chicago, joined Enron, too, in the treasury department. She left the company in early 1997.
Fastow and Skilling quickly became partners in the effort to reshape Enron, and Skilling looked to Fastow to help develop the financing that would fuel the growth of his empire. At first, the off-balance-sheet financings created by Fastow and his group were not particularly risky, say bankers familiar with the deals. Early ones were backed by payments from oil and gas producers. But before too long, they say, Enron began using its growing clout to include in the deals a hodgepodge of assets, some of dubious quality, and a range of unusual provisions. One banker recalls a partnership that had very few restrictions on what energy assets Enron could put in; his bank eventually started turning some of the deals down. Another banker was stunned by an on-balance-sheet financing that was to be backed up by third-party receivables. The problem was that Enron also included the right to replace the receivables with its own paper, which is now almost worthless. That deal was code-named Tammy, after Tammy Faye Bakker, and included her picture on the tombstone presented to participating bankers. As the banker recalls: "I said, `Is it that ugly?"'
So why did so many bankers go along? Most didn't want to miss the Enron gravy train. One Houston banker estimates that Fastow controlled some $80 million to $100 million in annual fees for a wide variety of banking and investment banking services. Reluctance to join an Enron deal or persistent questioning about the terms would lead to threats that they'd be cut out of future business, some bankers say. To help in its arm-twisting, Enron kept an internal spreadsheet listing which banks were in which deals and what they made. Fastow and his team would also sell their deals by hinting that even these off-balance-sheet structures were somehow backed up by Enron, says one former banker who did business with the company. And Fastow could also turn on the charm: He delivered flowers to the house of one banker after his son's baptism. Fastow's spokesman denies that he ever threatened bankers to get them into Enron's deals.
Fastow's hard-nosed business style doesn't square with the Andy that friends and acquaintances saw outside of the office. He was a major benefactor to the city's art museums, a fund-raiser for the local Holocaust Museum, and a co-founder of a synagogue. "The Andy Fastow I know is one of the most thoughtful and generous people in Houston," says Robert E. Lapin, an attorney who is one of Fastow's closest friends. When one of Lapin's three children was diagnosed with a rare disease, Fastow was one of the first to call. "He said, `You just tell me when and how you need help and I'll do it,"' says Lapin. Even old chums from New Providence (N.J.) High School recall Fastow as popular and well-liked, though extremely ambitious. He was the first permanent student representative to the New Jersey State Board of Education, for instance, a post he pushed to create.
Now as friends and colleagues try to figure out how Fastow landed in the middle of one of the biggest financial scandals ever, that driving ambition is looking more and more like a liability.
By Wendy Zellner in Dallas, with Mike France in Houston and Joseph Weber in Chicago