Suggestions

Review System Preferences

Create another user.

Log in as that user.

Use the Security & Privacy pane of System Preferences. In the FileVault tab, click Enable Users… then in the sheet, ensure that all required users are enabled.

Hint

System Preferences may show that FileVault is enabled, with a recovery key, when there is encryption with Core Storage, but neither FileVault 2 nor a recovery key. I reported this bug to Apple a while ago.

Similarly, but not the same bug:

• I assume that System Preferences may show FileVault disabled on a system where most elements of FileVault are enabled.

Thorough application of Disk Utility

Ensure that the utility is applied:

• to the logical volume group, which appears to contain the logical volume.

(Where Core Storage is used, Disk Utility in 10.8 can not show the physical disk.)

If you select the LV alone, then verification will omit the partition map.

Observations

Conversion Status: Failed

If encryption was applied when the volume was created (typically: erasure with Disk Utility) then:

• there was no conversion forward
• conversion backward can not begin.

Conversion Direction: backward

This implies that:

• recently, conversion backward did begin
• previously, the logical volume was the result of conversion forward (not the result of erasure with Disk Utility).

diskutil coreStorage encryptVolume 4FDED44E-EC4B-4B11-9FF5-9C958BD8CEAB

That could apply if logical volume 4FDED44E-EC4B-4B11-9FF5-9C958BD8CEAB was not encrypted.

As the LV is already encrypted, the response from diskutil is correct.

The question in Apple Support Communities

From the opening poster:

• Cannot enable FileVault

Does the resolution there in ASC, the bounty here in Ask Different, mean that Dennis continues to seek a more detailed answer, a better resolution?

Code -69755

-69755 appears in another discussion:

• FileVault failed and now I can't turn it off.

Interpreting the failure

Pessimistically but realistically:

• a failure to convert – with conversion of nothing – may indicate media failure, possibly in or around the area occupied by the extents file.

Since it's now clear you have an external drive, I don't know how much of this applies, but I'll leave it in case it helps someone in that situation.

I typically boot the mac into Target Disk Mode and use another Mac to enter the password for any account on the FileVault Mac to mount the encrypted core storage drive under OS X. If the Mac was set up with a recovery key, you could also use that to unlock the volume and read from the actual files and not the encrypted data.

At this point, you can read / write to the raw device or use the normal file system tools or run your program or Disk Warrior or Drive Genius to scavenge blocks as if the drive were a normal, non-FileVault 2 drive.

Trying to copy the encrypted raw blocks off the drive is futile without NSA / FBI level of funding, tools and know-how. There are people that do this professionally, but I'm not one of them. Also, since your drive isn't showing the normal "enter your password" to unlock dialog, it's not clear you can do anything but look for other copies of the data or get a quote from a professional data recovery service to see if they are willing to try to get things back.

Personally, if I had a FileVault drive that went bad, I'd probable just call up Kroll Ontrack or another professional firm and get a quote for their assistance. In the end, it would either be data I could restore from backup, write off as a loss, or pay $$$ to get back.