HOUSTON – Enron Corp. founder Kenneth Lay describes his return as Enron’s CEO just months before the energy company’s collapse in terms that make him sound like he was a student cramming for a final exam after letting others do the coursework.
“Throughout that whole period, a lot of information was flowing to me from a lot of different sources,” he said.
Lay contends he was clueless about fraud at Enron when he resumed the reins of the company in mid-August 2001 after the abrupt resignation of his protege, former CEO Jeffrey Skilling. He also says that even as he was being warned about questionable activities, he was working hard – and legally -to straighten out the company’s financial problems.
Lay will have to convince a jury of that if he hopes to avoid a long prison term. Federal prosecutors are alleging that when the longtime Enron chairman regained the CEO title, he also took control of a long-standing conspiracy to fool investors and regulators into believing the firm was healthy.
Lay recently discussed the 11 counts of conspiracy, fraud and lying to banks against him and other topics – including his relationship with President Bush and his personal finances – as part of his uncommon public defense blitz to return the Justice Department’s punches. His attorney, Michael Ramsey, was not present.
Lay said he tried and failed to save Enron, which rose to No. 7 on the Fortune 500 under his leadership, but he didn’t know that the crimes that sealed the company’s fate were being committed on his watch. Lay insisted he was duped by Andrew Fastow, the financial whiz he trusted to ensure that the company’s operations were legal.
After Skilling left the company, Lay said he met with division heads and representatives of various groups regarding organizational changes, personnel changes, strategic decisions, investments, regulators, legal issues, finance, operations “or whatever.”
He heard complaints, most notably from Sherron Watkins, the former Enron executive who warned Lay of impending doom less than four months before the company crashed. He also heard assurances that Enron could handle hundreds of millions of dollars in write-offs for money-losing ventures in broadband and water, as well as some of Fastow’s convoluted financing methods.
“Out of that, I’m sure an awful lot of things came to me, but again, from my standpoint, I was convinced all the way through that period, literally well into October, that the company was strong,” Lay said.
He says he had to play catch-up because throughout 2001 and in late 2000, he was turning over CEO duties to Skilling, who assumed that post in February 2001.
Lay also says the company’s sprawling operations meant he had to trust others to handle details of its inner workings. He noted that in its heyday, Enron had 30,000 employees in 30 countries, and more than 500 executives held titles of vice president or better.
Fastow, Enron’s former finance chief, pleaded guilty in January to running schemes and partnerships to hide Enron’s debt and inflate its profits while funneling millions of dollars to himself. Fastow is the government’s most high-profile cooperating witness and the object of Lay’s scorn.
“It looks like Fastow was the mastermind of all of it,” Lay said. “And again, he apparently did a pretty good job of selecting those he wanted involved in it. But we’re more likely to think there was bad activity going on very close to him than anywhere else in the company.”
Enron’s collapse led a series of corporate scandals that prompted Congress to pass sweeping reforms of securities laws. Thousands of Enron’s workers lost their jobs, and the stock fell from a high of $90 in August 2000 to just pennies, wiping out many workers’ retirement savings.
Lay remains free on a $500,000 bond while he awaits trial. He says his and his wife’s $400 million net worth has dwindled to less than $20 million, and most of that is earmarked for legal fees. If convicted on all counts, Lay could receive up to 175 years in prison plus fines that could total more than $5.7 million.
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