How Fastow Helped Enron Fall

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Enron's ex-CFO Fastow kept mum before a hostile House hearing

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In the hallways, colleagues respected and even feared Fastow's power--but not his presence. A former executive says he was never sure what Fastow was thinking other than how a particular project would affect his career. But, in the words of another former Enron manager, "he was Skilling's fair-haired boy."

Fastow is married to a woman he met at Tufts, Lea Weingarten, whose family built a supermarket and real estate empire based in Houston. They were not social climbers, for good reason. "Lea is from an old Houston family," says Marti Mayo, executive director of the Contemporary Arts Museum. "She didn't need to move anywhere. She was there." For most of the Roaring Nineties, the Fastows did not play the power couple; instead they lived like other professionals in the West University area and raised two children. They worked together at Enron's finance divisions in the early '90s, before Lea left to focus on the kids. They were just beginning to live rich--they are building a $1.3 million home in the city's old-money River Oaks section--and he tooled around town in a Porsche 911.

Their passion is modern art, and they donated $25,000 to the Menil Collection, one of the city's contemporary-art museums. They were accumulating edgy contemporary art--not just for themselves but also for Enron's new 40-story Cesar Pelli skyscraper. Lea took charge of the firm's art purchases, which included sculptures by Claes Oldenburg and Martin Puryear. The Fastows had plans to be big givers; they channeled $4.5 million, reaped from a $25,000 investment in one of his deals, to the Fastow Family Foundation.

Friends and acquaintances saw Fastow as a low-key family man. Attorney Robert Lapin, who has known him for a dozen years, calls him "modest, unassuming, not at all self-aggrandizing." At his temple, Congregation Or Ami, Fastow spent time helping shape some of the congregation's education programs along nontraditional lines. Says Rabbi Shaul Osadchey: "He was one of those people who could think outside the box."

That may be why Skilling hired him in 1990 from Continental Illinois, a Chicago thrift that failed in the mid-'80s savings-and-loan bust. Fastow had a skill Skilling needed; he did asset "securitization," a means for banks to sell off risk in the form of securities backed by mortgages or other obligations.

There is nothing inherently sinister about special-purpose entities, and Enron's initial investors did well because the deals were straightforward. CalPERS, the California state pension system and one of the nation's largest institutional investors, put $250 million into an spe called jedi i, which invested in natural gas projects. CalPERS got back $433 million, a spiffy 73% return over four years.

But Fastow and his investors got spe-deep in trouble. As the volume of deals increased to meet Skilling's aggressive growth targets, the returns got thinner and thinner, and the hard assets behind the first partnerships were later supplanted by stock or guarantees from Enron.

Fastow worked hard to enrich himself and others who could be of use to him. One was Enron lawyer Kristina Mordaunt, who in March 2000 was invited into a Fastow venture called Southampton Place. She put down $5,800, expecting to make a little money over time, her lawyer Hayden Burns tells Time. Only a few weeks later, she got a call from Michael Kopper, a Fastow associate, who said the deal was winding down. When Mordaunt opened her bank statement in April, she saw a deposit for $1 million. The Powers report of Enron's special directors committee suggests Mordaunt was cut into the deal to secure her loyalty. Burns says his client did nothing in return for the windfall. She wasn't the only winner in Southampton Place: Fastow and Kopper each turned a $25,000 investment into $4.5 million.

When Fastow and Skilling went back to CalPERS in 1997 with jedi ii, the natural gas projects had been replaced by unspecified energy projects. CalPERS pulled out of jedi ii in October 2000 to invest in something simpler and more transparent, and Fastow scrambled to set up an entity to take its place. Known as Chewco, it was a partnership controlled by Enron employees, including Kopper. According to the Powers report, Chewco and similar partnerships were engaged in shuffling assets to cover losses and create illusory profits. As a result, Enron overstated earnings by $1 billion from the third quarter of 2000 through the third quarter of 2001.

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