Lay Warned Enron Employees of Eroding Values

By Frank Ahrens
Washington Post Staff Writer
Monday, April 24, 2006; 9:24 PM

HOUSTON, April 24 -- Enron founder Kenneth L. Lay testified Monday that he warned employees of an erosion of values at the company in August 2001, saying some Enron employees were "getting pretty arrogant."

The statement was one of several throughout Lay's first day on the witness stand in which he drew subtle but perhaps important differences between himself and Jeffrey K. Skilling, Enron's former chief executive, who testified ahead of Lay and faces 28 counts of fraud.

Lay is charged with six counts of fraud related to the 2001 collapse of the energy giant. Shortly after taking the witness stand, he proclaimed his innocence and said that the trial has transformed his American dream into an "American nightmare."

Lay and Skilling have said that Enron was in sound financial shape prior to its collapse, blaming the demise of the nation's seventh-largest company on a failure of investor confidence and a classic "run on the bank" after news reports emerged of questionable deals at the company.

Lay and Skilling have said that the architect of those deals -- former finance chief Andrew Fastow, who has pleaded guilty to fraud and is helping the government -- and a few other bad actors are to blame for Enron's collapse.

Lay, who had been Enron's chief executive, handed over the job in early 2001 to co-defendant Skilling, who finished two weeks of sometimes testimony on the stand on Thursday. Skilling left the company only six months after he got the top job, saying he was exhausted.

But the government has alleged that he left to beat what he knew was the coming collapse of energy giant, which filed for bankruptcy protection in December 2001. The government has accused Lay and Skilling with hiding mounting losses at Enron to boost the company's stock price.

The charges against Lay largely focus on the period when he took over the chief executive job from Skilling, from August 2001 to December 2001. The trial enters its 13th week on Monday.

Lay corroborated Skilling's testimony that he left the company for personal reasons. The markets were surprised by the exit, but Lay said he was not.

"It was pretty clear that Jeff wasn't having much fun in his new job," Lay testified. "Being CEO in the first half of 2001, with the markets the way they were and the economy and other pressures on him with the stock performance and everything, it was maybe not unexpected that he would not be enjoying the job as much as I'd like to have seen him enjoy it."

But Lay drew some tactical space between himself and Skilling when describing his address to an all-employees' meeting shortly after taking over for Skilling.

"Our values were being eroded somewhat," Lay testified. He painted a picture of the company and economy in summer 2001, noting that Enron's stock price had dropped, hurting employee retirement savings, and the economy was cooling after years of growth.

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