Fastow 'encouraged to hide Enron losses'

Andrew Fastow, the former finance officer of Enron, the collapsed energy company, told jurors yesterday he was encouraged to manipulate the company's results.

Taking the stand at the trial of the former Enron bosses Kenneth Lay and Jeffrey Skilling, Fastow said Mr Skilling demanded he squeeze "as much of that juice as you can" from hidden deals that kept huge losses off Enron's books.

The long-awaited appearance of the dapper financial wizard is a gamble by prosecutors, who know the defence team is raring to rip into Fastow's credibility.

He was the architect of the house of cards that collapsed into bankruptcy in 2001, and is serving 10 years in prison for two counts of fraud. He agreed to testify after a plea bargain that wiped away 96 other charges.

The defence contends that Fastow stole from Enron, enriching himself through unauthorised fees on deals between the company and off-balance sheet partnerships in which he had invested.

But in his testimony yesterday, Fastow said Mr Skilling was fully aware of the partnerships and knew they were being used to make sure Enron would meet the earnings forecasts it had given Wall Street.

The hidden partnerships - LJM1 and LJM2, named using the initials of Fastow's wife and children - were used to "bail out" Enron by doing deals that independent third parties would not touch. "We were doing this to inflate our earnings, and I don't think we wanted to show people what we were doing," Fastow said. He recounted a conversation with Mr Skilling when he had asked for more money to expand a second partnership to bolster earnings. He said Mr Skilling replied: "Get me as much of that juice as you can." And he said LJM2 was forced by Mr Skilling into buying a "piece of shit" power plant in Brazil which had been losing money and which Enron wanted rid of.

According to Fastow, Mr Skilling defended his house of cards to the board, saying the only risk was "The Wall Street Journal risk" - that is, the possibility they would be exposed in the press.

The trial is into its second month in Houston, Texas. Mr Lay, who founded Enron and was once the confidant of Texas lawmakers including George Bush, faces seven charges of fraud and conspiracy over his role in Enron's collapse. Mr Skilling, his chief executive until a few months before the final débâcle, faces 31 charges.