As expected, the media is all over the well-scripted direct examination of former Enron CFO Andy Fastow, although some media sources are already questioning the credibility of some of Fastow’s direct testimony.

However, given the breadth of Fastow’s direct examination, the media has not yet focused on the absolutely bizarre testimony that Fastow gave yesterday on the sad case of his wife, Lea Fastow.

The Enron Task Force prosecuted Mrs. Fastow on tax fraud charges more harshly than normal — and she endured longer and harsher punishment (one year in prison) — because of her relationship to Mr. Fastow.

In that regard, Fastow filed an affidavit in his wife’s criminal case during 2003 in which he swore that “I never, and to my knowledge and belief, Michael Kopper never, agreed or conspired with Lea Fastow to commit the crimes alleged in Counts 1 and 2 of Lea’s indictment.”

The purpose of that affidavit was to support a motion requesting that Mrs. Fastow’s trial be put off until after Mr. Fastow’s criminal trial so that Mr. Fastow could testify on his wife’s behalf without waiving his Fifth Amendment privilege against self-incrimination, although Mr. Fastow’s affidavit comes pretty darn close to waiving it, at least in regard to the tax fraud charges.

U.S. District Judge David Hittner ultimately denied that motion and scheduled the case against Mrs. Fastow to trial, which prompted both Fastows to have their plea deals with the Enron Task Force approved in May, 2004.

By that time, Mr. Fastow had been cooperating with Task Force prosecutors for since at least January, 2004 and Mrs. Fastow had withdrawn from an earlier plea deal with prosecutors after Judge Hittner had rejected it. Judge Hittner proceeded to sentence Mrs. Fastow to a year in prison, which she has completed.

With that backdrop, Fastow attempted to explain during the early afternoon portion of his testimony yesterday the statements that he made in the affidavit that he filed in his wife’s criminal case. Apparently, Fastow contends that his affidavit was technically truthful because it says that he and Kopper did not conspire with Mrs. Fastow to commit tax fraud.

Left unsaid in the affidavit is that Fastow and Kopper did conspire with each other to commit tax fraud; they just didn’t include Mrs. Fastow in that conspiracy.

So, let’s get this straight.

While cooperating with Task Force prosecutors, Fastow tells prosecutors that his wife is innocent of the tax fraud charges. Either the Task Force prosecutors did not believe him and proceeded with the criminal case against Mrs. Fastow, anyway, or the Task Force prosecutors believed him and proceeded with the criminal case against Mrs. Fastow, anyway.

If the reason that the Task Force proceeded against Mrs. Fastow is that they didn’t believe Mr. Fastow, that certainly doesn’t say much for the credibility of one of the prosecution’s key witnesses in the case against Skilling and Lay.

On the other hand, if the prosecutors believed Mr. Fastow and proceeded with the criminal case against an innocent Mrs. Fastow, anyway, that is an egregious example of the type of prosecutorial misconduct that has plagued the Task Force’s entire investigation of the Enron scandal.

Cross-examination of Mr. Fastow is going to be very interesting.

As predicted yesterday, the media frenzy over former Enron CFO Andy Fastow’s testimony relegated the previous Enron Task Force witness — former Enron Broadband chief operating officer Kevin Hannon — to obscurity rather quickly. However, before leaving the stand, the final moments of Hannon’s testimony yesterday reminded me that a lawyer should always be extra-careful about what to ask the witness during re-direct examination.
As noted here, one of the Enron Task Force’s main themes last week during the testimony of former Enron Energy Services executive David Delainey and a couple of other witnesses was that Skilling engineered a reorganization of the Enron Energy Services (“EES”) unit in a manner that hid trading losses of that unit underneath the blanket of high profits being generated by Enron’s top-flight trading unit, Enron Wholesale. During cross-examination, Skilling’s lawyers challenged Delainey and the others by suggesting that the true purpose of the reorganization was simply business efficiency — to combine EES’ poorly-performing trading operation with the better trading expertise of the Wholesale unit. Delainey, in particular, generally contested that defense contention during cross-examination.
Which leads us to the following exchange between Task Force prosecutor Cliff Stricklin and Hannon during redirect examination yesterday:

Q. And what did [Enron Wholesale CEO] Mr. Whalley, first of all, remind the jury who Mr. Whalley was at the time?
A. He was the CEO of Wholesale.
Q. And what did Mr. Whalley tell you about the rationale for Mr. Skilling moving EES into Wholesale?
A. He said he had met with Dave Delainey, who was depressed over the state of the EES business and he said we had to do something. I didn’t want Dave to quit, so we made the argument to Arthur Andersen that we should move the risk folks [from EES] into Wholesale.
Q. And why?
A. To improve the operation of EES [was] my impression.

Mr. Stricklin quickly moved on to another line of questioning, but it’s hard to downplay testimony of a prosecution witness that directly contradicts a major theme of the testimony of the prosecution’s previous witness.
Be careful what you ask on re-direct.