Archive for Thursday, July 8, 2004

Enron’s Lay to surrender upon indictment

July 8, 2004

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— Kenneth Lay, the disgraced former chairman of the Enron Corp. and symbol of an era of unprecedented corporate greed, will face federal criminal indictment Thursday.

Lay, who built a small Texas pipeline company into the nation's seventh-largest public firm and brandished easy access to Washington's power corridors, even enjoying a "Kenny Boy" greeting from President Bush, faces a series of securities fraud and insider trading charges. He is the 23rd Enron official to be indicted.

Wednesday night, Lay, 62, stated, "I have been advised that I have been indicted. I will surrender in the morning. I have done nothing wrong, and the indictment is not justified." Lay's attorney Michael Ramsey, of Houston, did not return phone calls.

Lay's role as chairman and chief executive during Enron's rapid growth and its quick descent has been documented in earlier criminal filings in the Enron case. Details of the charges against Lay were not available Wednesday night, but over the past two years, prosecutors have constructed a portrait of Enron's aggressive, high-profile, risk-taking corporate climate that featured shaky ventures with dubious legal grounding and an elaborate maze of financial transactions aimed at stretching the firm's finances and eventually masking the firm's true financial condition.

Prosecutors have paraded witnesses before the grand jury and used testimony of former chief financial officer Andrew Fastow to build their case against Lay. Fastow's wife, Lea, a former Enron assistant treasurer, is scheduled to begin her jail term this month. He faces a 10-year sentence and has been cooperating with federal prosecutors against his former boss Jeffrey Skilling and against Lay.

Lay, whose net worth once exceeded $400 million, has had little to say as the company collapsed except to take the Fifth Amendment when called to testify before Congress. He also told a New York Times reporter that the corporate meltdown was caused by the out-of-control financial operation led by Fastow.

Still, Lay's direct involvement in a series of critical events in the summer and fall of 2001 as Enron spiraled into bankruptcy has already been detailed in indictments against Skilling and Fastow.

According to law enforcement documents, Lay addressed Enron board members when several complex financial transactions involving Fastow were presented and approved. He also addressed stockholders and stock analysts with optimistic forecasts when the firm's finances were shaky.

Lay's net worth reportedly has now fallen below $20 million, and he has less than $1 million in available cash that is not earmarked for repaying debt or legal bills.

Lay also said that he was forced to sell much of his Enron stock in late 2001 to finance outstanding debts. He explained that financial advisers had suggested he diversify his finances before 2001. He did this by using his Enron shares as collateral, rather than selling them to finance new investments.

Lay claimed that like many regular Enron employees and shareholders, he, too, was trapped by the rapid Enron sell-off. In a crucial Sept. 26 online meeting, he told employees he was purchasing Enron stock at the time. In fact, he had just purchased or was awarded 185,000 shares by the company. But he also had just sold 550,000 Enron shares to meet outstanding margin calls on his other investments.

Enron's collapse was stunning. Its stock price plummeted from a high of $90 in August 2000 to less than $1 by November 2001, gutting the lifetime savings of some 20,000 pensioners and costing some 5,000 people their jobs.

In its wake, Enron and its top brass have left a landscape littered with legal and regulatory carnage.

Arthur Andersen, the accounting giant, was convicted of obstructing justice and no longer exists. Seven congressional committees investigated the firm and discovered a dizzying array of tax strategies designed to hoodwink the IRS and enrich Enron executives. Investigators exposed a complex and risky investment in energy wind farms in California, a floating energy plant off the coast of Nigeria, a controversial nuclear power plant in India and a power plant in northern Brazil.

Enron was but the first in an epidemic of corporate corruption that consistently featured a pattern of high-level corporate greed, distracted and conflicted boards of directors and lax scrutiny and regulation by the Securities and Exchange Commission.

Official Washington scrambled to exert itself. Congress enacted legislation that ended the self-regulation of the accounting industry and created a new Public Company Accounting Oversight Board to crack down on corporate accountants and auditors. It also upgraded the SEC and nearly doubled its staff and annual budget.

Lay was an ardent Bush supporter who contributed more than $300,000 to the president's 2000 campaign and inauguration committees.

Lay also met at least twice with other Enron officials and Vice President Dick Cheney in early 2001. But eventually as the scandal unfolded Lay was shunned by the administration and federal regulators.

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