Enron Genius Behind the Curtain

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Monday, January 21, 2002

Enron Genius
Behind the Curtain

If Andrew Fastow showed up on Canal St. this morning, his face naked to the world, not a soul would know him. If he strolled through Chelsea, visiting the art galleries or stopping for coffee, he would be just another part of the New York blur. If he stood at the corner of Wall and Broad Sts., with George Washington at his back and the house of Morgan in front of him, not a soul would spot him, pause and say hello.

That comforting anonymity is about to change. Andrew Fastow is weeks away from suffering one of the most terrible of all American punishments. He is about to become famous.

His fame will be of the negative variety, of course, because Fastow was the shadowy genius of Enron. He soon will be dragged before open congressional committees and sworn to tell the truth. Cameras will be trained on his handsome 40-year-old face. His words will go out across the nation and be analyzed by all manner of commentators.

Like John Dean, who was faceless until the Watergate hearings began, cartoonists will find a way to draw him, comedians will make their jokes, he will be subjected to patrols of photographers camped outside his house in Houston.

This kind of negative fame used to be called notoriety. Sometimes the notorious are hauled away in handcuffs. Sometimes they do other forms of restitution, usually under court order. A lot of the times they are rewarded for their terrible behavior with the ultimate American reward: a book deal. All such books should bear a common title: "Guilty with an Explanation."

Fastow will have much to explain, either under oath or through the rented fingers of a ghostwriter. The basic facts have as much to do with the truth of his character as the facts listed on any bald résumé.

Age of Illusions

He was born in Washington on Dec. 22, 1961, when John Kennedy was President, and graduated from Tufts University in 1983, when Ronald Reagan was the occupant of the Oval Office. That is, he was young in a time when we went from a President who looked like a movie star to a movie star who looked like a President. An age of illusions was upon us.

Fastow graduated from Tufts with a degree in Chinese and economics, a combination that on the surface seemed odd. It wasn't. I'm told that Chinese, in all its ancient variations, is a language of great subtlety, full of exactness or deliberate vagueness, given to the forging of puzzles and linguistic escape hatches. When Fastow moved on to Northwestern University to earn his master's degree in business administration, he brought with him an acquired understanding of Chinese boxes. That is, of boxes within boxes within boxes.

When Fastow finished at Northwestern, he went to work for the Continental Bank in Chicago. By 1990, he was working for Enron Corp. in Houston. At that time, Enron was basically a pipeline company. It was regulated by various federal laws and had assets of about $3.5 billion. At Enron, Fastow's closest friend and collaborator was a man named Jeff Skilling, who joined the energy company in the same year from the consulting firm McKinsey & Co.

Company Needed Brains

Skilling was an ardent advocate of the theology of deregulation, a condition normal to members of the Texas oilocracy. More important, he had a vision of Enron as a capitalist supercompany that had very few physical assets. The modern company didn't need factories, pipelines or even real estate as much as it needed brains. Its people should be smarter, more creative, more adventurous than their competitors. Broadband! Fiber optics! Get rid of the regulations, he preached, and embrace the amazing future.

Fastow was one of the smartest of the smart people at Enron. And he was becoming known, in an imprecise way, around Houston.

According to a report by Loren Steffy of Bloomberg Markets, Fastow's wife, Lea Weingarten — they met at Tufts — came from a Houston family that owned a chain of 87 grocery stores and a real estate business. As Enron began its rise to the seventh-largest corporation in America, the Fastows showed up at fund-raisers for many honorable causes: the Contemporary Arts Museum, the Holocaust Museum, the Interfaith Ministries of Greater Houston. Their checks cleared. Nobody asked how the money was earned.

By 1998, with Skilling moving relentlessly to the top of the company, the big con at Enron was well underway. That year, Fastow was named chief financial officer of Enron. "We needed someone to rethink the entire financing structure — soup to nuts," Skilling said in 1999. "Andy has the intelligence and the youthful exuberance to think in new ways."

By the time Fastow was finished with his rethinking, Enron had become a bewildering system of Chinese boxes. More than 900 Enron subsidiaries, off-shoots and private partnerships had been created, along with an uncountable — so far — number of bank accounts hidden in other countries.

Nod to 'Star Wars'

He had created off-the-books partnerships that existed primarily on paper, with names like Chewco, Jedi, Obi-1 Holdings, Kenobe Inc., named after characters in "Star Wars," which was, of course, a fiction. They were used to make private money for himself — in only two years, Fastow would take home $30 million — or to hide Enron's escalating debt. This was like "betting on the side" in a craps game: You never have to pick up the dice yourself and roll them.

All of this was done in secrecy, almost certainly with the collusion of the accountants from Arthur Andersen & Co. and the knowledge of Skilling, Enron founder Kenneth (Kenny Boy) Lay and members of the board. That board, for example, twice waived its own ethics rules to allow Fastow to serve as one of the shadowy partners in an Enron offshoot that he created.

The purpose for the secrecy, and the invention of the Chinese boxes, was simple: to con investors into believing that Enron was a healthy company when it was in fact sick with debt.

Some of those investors were huge players. As Richard T. Pienciak reported in yesterday's Daily News, New York City pension funds alone owned $109 million in virtually worthless Enron stock when the company went bankrupt in December. They believed the Enron financial statements, audited as they were by Arthur Andersen, the biggest accounting firm in America. The other victims of the con, of course, were Enron employees.

Skilling resigned without explanation in August. Fastow was fired in October. But Fastow will not be reduced to selling Enron memorabilia on eBay, as ordinary Enron employees have been doing. Starting in 1998, armed with the knowledge of an insider, he started unloading his Enron stock, adding more than $34 million to his take. He doesn't show up at benefits anymore in Houston. But pretty soon, everyone will know his face.

-- Cherri (jessam5@home.com), January 23, 2002

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