By Carrie Johnson
Washington Post Staff Writer
Monday, April 24, 2006
HOUSTON, April 23 -- When Enron Corp. founder Kenneth L. Lay takes the stand Monday in his own defense, he will try to convince jurors that what prosecutors call fraud was really the misdirected power of positive thinking.
Lay, 64, faces a half-dozen criminal charges stemming from the collapse of the Houston energy company he built. In essence, the government claims he put a misleadingly optimistic spin on Enron's mounting financial woes and urged employees to buy stock as an "incredible bargain" at the same time he knew things were unraveling.
Lay insists that he refused to dwell on problems and focused instead on good news in an honest belief that he could right the ship when it listed in late 2001. That, Lay's defense lawyers argue, is not enough to send a man to prison for what could be the rest of his life.
"There's no question in my mind that Ken Lay believed in his heart and soul that he could turn it around, and he would turn it around," said Terry Giles, a close friend and fellow winner of the Horatio Alger Award, a prize that honors people who rise from rags to riches. The award was founded by Norman Vincent Peale, author of "The Power of Positive Thinking."
Lay's outlook is rooted in his personal history. The son of a poor, itinerant preacher, he won a scholarship to the University of Missouri, made influential friends, earned a doctorate in economics and even did a tour in Washington as an Energy Department official. During Enron's waning years, he earned $220 million.
"He's not one to say, 'No, this can't be done,' " said Philip Carroll, a neighbor of Lay's and a former Royal Dutch Shell executive who ran Iraq's oil industry after the U.S. invasion.
Before Enron's December 2001 filing for bankruptcy protection, Lay had it all. He was, in short order: a friend to the Bush family, the primary mover behind efforts to keep professional baseball and football teams in Houston, and a trusted emissary from the corporate world to African American and religious leaders.
Even after the collapse, many employees refused to believe that Lay had anything to do with Enron's downfall, although critics seized on disclosures that he quietly unloaded $70 million worth of Enron shares to pay personal loans at the same time he urged others to buy.
Lay still inspires near-reverence in some quarters. Defense witness Sarah Davis, a former employee in Enron's personnel unit, was almost moved to tears earlier this month when she told the jury she viewed Lay as both "a gentleman and a general." Lay beamed at her from his seat at the defense table as she remembered thanking his wife, Linda, for the couple's sacrifices after a meeting in August 2001, when Lay resumed day-to-day control of operations. Another defense witness, Cindy Olson, told the jury Thursday about Lay's tireless efforts to support the United Way, the Boys and Girls Clubs, and other charities.
Known for his easy manners, Lay sometimes has served as a sort of usher, holding open the courtroom door for streams of spectators, including his daughter Elizabeth Vittor, a lawyer and member of his defense team, and his wife, a constant presence who sits on a blue cushion in her spot in the family row. Both Lays have laughed freely at lighthearted moments during the trial. They clutch each other's hands as they navigate streams of cameras outside the courthouse.
But testimony in the case, which began Jan. 30, at times has reflected a harder side of the smooth corporate statesman.
For instance, jurors last month heard audio clips from an October 2001 earnings conference call in which Lay brushed off questions about Enron's troubled international operations, pet projects for which he often jetted across the globe. Lay's statements about one of the overseas water-supply businesses form the basis of a criminal charge against him in the case.
"Now, I know you want to drive the stock price down, and you've done a good job at doing that, but I think that's that," Lay barked at a skeptical analyst. "Let's move on to the next question."
Pipeline worker Johnnie Nelson, a plain-spoken man who lost his retirement savings after Enron's bankruptcy filing, told the jury last month that he once put Lay on a pedestal. Now Nelson says, "He violated my trust. That's all I know."
By many accounts, Lay appeared overwhelmed when he took the chief executive post from protege and fellow defendant Jeffrey K. Skilling in the summer of 2001, after Skilling resigned. Skilling had transformed Enron into a trading company with tens of thousands of employees, while Lay focused on strategic decisions and courted politicians. Skilling said as much during his turn on the witness stand earlier this month.
"Ken was more interested in the external realm of talking to different sorts of people, regulators, businessmen in the international arena," Skilling testified. He drew a smile from Lay when the sometimes brutally blunt witness added, "I think most people would agree I was not particularly good at dealing with government officials."
Even his friends say conflicting pressures hit Lay from August to November 2001. Those issues included questions about the integrity of the company's chief financial officer, Andrew S. Fastow; more than $1 billion in accounting write-downs; and complaints from two women who warned of misdeeds within Enron's ranks.
Several former Enron executives testified that Lay often seemed diffident, even noncommittal, as troubles arose. Former treasurer Ben F. Glisan Jr. said Lay would not pull the trigger on an important bid to sell some of the international operations because he worried about how the stock market and the credit-rating agencies might react to losses. Former executive Sherron Watkins said he listened but ultimately did little to assuage her concerns about conflicts of interest and accounting manipulations whose disclosure helped precipitate Enron's meltdown only a couple of months later.
But what may influence the jury more than anything else are Lay's personal financial moves in the company's final months. According to trial testimony, one board member later exclaimed he used a $7.5 million line of credit "like a damn ATM machine," even though Lay has never faced criminal charges for the transactions themselves.
The government's final witness, a soft-spoken accountant named Joanne Cortez, described crying in a stairwell when she learned that Lay had successfully petitioned the board to increase the credit line in a way that allowed him to borrow millions from Enron, which he repaid with company stock. She eventually took a spreadsheet detailing Lay's use of the credit line to the FBI, she testified.
Lay faces a different set of challenges than Skilling, who demonstrated substantial knowledge of the business but also a bristling personality and several memory lapses in eight days of testimony. Lay's lead defense lawyer, Michael W. Ramsey, is recuperating from surgery to repair arterial blockages diagnosed early in the trial, leaving his defense team to shift gears abruptly. George "Mac" Secrest, a respected, award-winning Houston appellate lawyer, will question Lay.
On the positive side for Lay's defense, Skilling resisted attempts by prosecutors to drive a wedge between the two defendants, going out of his way to help Lay's case during his own testimony. And the government has far less information on Lay to exploit for inconsistencies, because Lay heeded his lawyers' advice and refused to testify before Congress and the Securities and Exchange Commission. That also means, however, that Lay has had less experience fielding hostile inquiries of the sort he is likely to face from Assistant U.S. Attorney John C. Hueston, who will cross-examine him.
Lay might face questions about his actions dating back to more than a decade before Enron's fall. Prosecutors hope to introduce evidence about what they call Lay's failure to act, despite repeated warnings, in an earlier crisis, a 1987 trading scandal within Enron's New York operations. They argue that his allegedly inadequate response back then carried the seeds of the company's fall, despite the fact that Lay never faced criminal charges from the earlier debacle. The judge has said he will wait and see how Lay testifies before issuing a final ruling.
In the end, Lay may be banking on the deep support he once cultivated so deftly during his rise to convince the jury that he is incapable of fraud. The Lays, said pastor Steve Wende of Houston's First Methodist Church, have been reminded of some "deep life priorities."
"It's been very sobering, how vast the differences between friends and acquaintances," Wende said. "Many in Houston who have experienced Ken Lay's personal integrity and personal compassion have a great deal of trouble believing the critics."