Houston Enron Corp. founder and former chairman Kenneth L. Lay began his long-awaited testimony Monday by declaring his innocence and telling a federal jury that the energy company's 2001 bankruptcy filing turned his American dream into an "American nightmare."
Lay quickly drew a distinction between responsibility and blame for Enron's collapse. While he said he accepted "full responsibility for everything that happened at Enron," Lay leveled much of the blame at Enron's former Chief Financial Officer, Andrew S. Fastow, who looted the company of millions of dollars, pleaded guilty to conspiracy and became the government's star witness.
"The deceit of Andy Fastow" headed Lay's list of factors in the collapse of Enron, followed by a series of negative news articles in the Wall Street Journal that Lay said was prompted by short-sellers, investors who stood to get rich betting that Enron's stock would fall.
A slowing economy, the Sept. 11 terror attacks and uncertainty surrounding former Chief Executive Jeffrey K. Skilling's surprise resignation from Enron in August 2001 also contributed "tinder" for a panic that, like a run on a bank, couldn't be stopped once it started, Lay said.
At the time, Enron's gas and electricity trading business had grown into a behemoth that generated 90 percent of the company's profits. But that business, Lay testified, was "totally dependent" on the confidence of its trading partners. When they lost confidence, they stampeded to cash in their positions and pull money from Enron, a process that ended with the bankruptcy filing.
Lay, 64, faces six counts of conspiracy and securities fraud. Skilling, 52, faces 28 counts of conspiracy, securities fraud and insider trading. The two are accused of lying to the public to hide Enron's shaky financial health and conspiring with subordinates to hide losses and pump up profits.
Lay said the conspiracy charge "is about the most ludicrous thing in the indictment." He said it was inconceivable that he would have resumed the CEO's job upon Skilling's departure and immediately taken charge of a conspiracy.
Asked to name his biggest mistakes at Enron, Lay said he never should have agreed to Fastow's hiring, never should have let him rise to CFO and never should have allowed him to create and run his now-notorious off-the-books partnerships while continuing to serve as CFO. The government contends that the Fastow partnerships were a mechanism for hiding Enron's "dog" assets and creating fraudulent profits.