Enron's former chief financial officer has told a Texas court that the company's bosses encouraged him to set up a web of phony partnerships to disguise hundreds of millions of dollars in losses, writes Denis Staunton in Washington

Andrew Fastow, the prosecution's most eagerly anticipated witness, said that he had set up a partnership called LJM1 in 1999 to help Enron hide losses in a start-up firm.

The partnerships allowed Enron to make acquisitions without paying fees to investment banks and to keep transactions off the books.

Some partnerships were used to insure against future losses on Enron investments.

"We were doing this to inflate our earnings, and I don't think we wanted to show people what we were doing," he said.

Mr Fastow, who has admitted two counts of conspiracy and agreed to serve the maximum 10-year sentence, said he had no doubt that Enron founder Ken Lay and former CEO Jeff Skilling approved of his actions.

He said Enron's board authorised his role in the partnerships and waived the company's code of conduct, which prohibited officers from taking part in ventures that posed a conflict of interest.

"I thought I was being a hero for Enron. At the time, I thought I was helping myself and helping Enron to make its numbers," he said.

Mr Lay and Mr Skilling deny any wrongdoing, claiming that Mr Fastow stole tens of millions of dollars from the company and engaged in illegal accounting practices without their knowledge.

Mr Fastow's partnerships had the sole function of buying up poorly performing Enron assets and then allowing the company to post the profits from such sales.

Mr Fastow said Mr Skilling was so pleased with the performance of the first partnership that he urged him to "get me as much of that juice as you can".

Mr Fastow told the court that, although Enron said that the purpose of the partnerships was to make quicker transactions and avoid investment banking fees, they were really designed to hide the company's massive debts.

"'The whole purpose of the partnership was to make Enron's numbers look the way they wanted them to look. Skilling made it clear that he wanted someone to run this partnership that would work with Enron in the future in a co-operative way," he said.

Mr Fastow said Mr Skilling was reluctant to share information about the partnerships with investors and Wall Street analysts "because it would attract attention, and if dissected, people would see what the purpose of the partnership was, which was to mask potentially hundreds of millions of dollars of losses," he said.

Lawyers for Mr Lay and Mr Skilling are expected to portray Mr Fastow as an inveterate liar and a crook whose testimony is designed to shift the blame from himself for the fraud that brought Enron down.

Prosecutors plan to limit Mr Fastow's testimony to little more than a day to avoid the possibility that he will say something that could weaken their case, but defence lawyers are expected cross-examine him for almost a week in the hope of undermining his testimony.

Mr Fastow, who must forfeit $24 million as well as serving 10 years in prison, also faces 10 civil actions but he denied that he had pleaded guilty because he could not afford to mount a defence.

"I pleaded guilty because I am guilty and I thought that decision would be in the best interest of my family," he said.