By Carrie Johnson
Washington Post Staff Writer
Tuesday, April 25, 2006

HOUSTON, April 24 -- Enron Corp. founder Kenneth L. Lay, taking the stand for the first time in his fraud trial, told jurors he took "full responsibility" for the Houston energy company's collapse, even as he went on to blame others for the company's misfortune.

Lay, 64, showed more hard edge than his trademark charm as he singled out short sellers who bet the company's stock would sink, skeptical media reports and illegal dealings by then-finance chief Andrew S. Fastow for the market unrest that led to Enron's undoing.

He also, ever so subtly, attributed problems to the resignation of the man who has sat at the defense table with him for 13 weeks, his protege and the firm's former chief executive Jeffrey K. Skilling.

"I think Mr. Skilling's resignation certainly created some uncertainty that we couldn't have predicted at the time," said Lay, who had planned to leave Enron for an investment partnership before Skilling's announcement. "I should have stepped down. That was my intent; that was my plan. I expect if I had done that, I wouldn't be sitting here right now."

Lay, whom President Bush famously nicknamed Kenny Boy, is the most prominent of business leaders brought low in a wave of investigations of corporate scandals. The trial is the closely watched final chapter in the government's effort to hold accountable executives who prosecutors say enriched themselves at the expense of investors and of workers at companies that failed.

Lay faces a half-dozen criminal charges for statements he made touting the stock after he took over day-to-day operations at Enron in the summer of 2001, a time when prosecutors say he knew the company was crumbling. Lay stepped in after Skilling abruptly resigned for what he said were personal reasons in August 2001.

Lay began his testimony by walking the jury through his impoverished upbringing and his success at the helm of what had been by some measures the nation's seventh-largest public company. Lay testified that he lived the American dream, only to watch it turn into a "nightmare" when he was handcuffed and slapped with criminal charges, accused of lying about Enron's health, two years ago.

"I've been very anxious to tell what I believe is the truth about Enron," Lay said in a strong voice shortly after he was sworn in Monday morning.

His lawyer, George "Mac" Secrest, told him, "Mr. Lay, that day has arrived."

Lay insisted that "the fundamentals of Enron were incredibly strong" that summer, telling jurors that he and Skilling were "very candid" about problems in the Internet division and with several international assets.

"It is absolutely ludicrous that I would step back as CEO and, as the indictment says, pick up the mantle of a conspiracy," he said.

Originally, Lay had hoped he would be tried separately from Skilling and former accounting chief Richard A. Causey, who pleaded guilty just before the trial began. But he wound up in a more difficult situation: facing charges with Skilling in one trial, which will be followed by a separate trial on bank-fraud charges as soon as the jury in the current trial retires to determine its verdict.

Both Skilling and Lay risked taking the stand to defend themselves, though with slightly different agendas. Skilling, who testified for most of last week, passionately described himself as a man more concerned with ideas and building new businesses than the lure of management and administrative duties.

On his first day on the stand, Lay labored to portray himself as a big-picture leader who relied on scores of accountants, lawyers and subordinates while he spent weeks traveling by corporate jet to meet with such dignitaries as the Italian prime minister and Indian heads of state. The man with a doctorate in economics from the University of Houston added: "I've had some accounting in college; I'm not an accountant. I had some statistics in college; I don't think I'm a statistician. Had some physics in college, don't think I'm a physicist."

Wearing a gray suit, blue shirt and red tie, Lay often directly addressed the jury and nine relatives who sat in the front row, including his wife, Linda, and his former wife, Judy. Lay sometimes sharply recast questions posed by his lawyer, offered extensive responses to simple questions and laughed to punctuate his own jokes. Known for his charm, Lay appeared more emphatic than cordial as he looked out at a courtroom filled with curious onlookers and lawyers with a stake in civil lawsuits against him. Among the spectators was Rep. Sheila Jackson Lee (D-Tex.), who greeted Lay warmly during a break in the action.

"He is a civic leader who has contributed to this community," Lee told reporters. "No one can take away what he has done."

Lay told jurors that Enron failed after several factors colluded to create "an environment very ripe to set off an investor panic." Among them, he said, were questions about outside business partnerships run by Fastow, who later admitted to siphoning millions of dollars from Enron. Lay also denounced short sellers, Wall Street's name for investors who bet that the price of a stock will fall. They engaged in what he called "a real conspiracy going back to January 2001" to drive down the stock price, he said. Last, he argued, was a series of negative Wall Street Journal articles beginning in mid-October. "It didn't take long to set the run on the bank in motion," Lay testified.

Lay contradicted testimony from a parade of government witnesses, many of them former Enron insiders who pleaded guilty in exchange for reduced prison sentences. He told the jury that an August 2001 meeting with Fastow, the man Lay said launched Enron's problems, "didn't happen, period." A September management meeting witnesses described as an "ugly" recitation of mounting problems in Lay's view was emotional yet "very productive."

In an area likely to be the focus of cross-examination this week, Lay said he instructed corporate lawyers to "not reinvent the wheel" in probing allegations of improper accounting lodged by executive Sherron Watkins in 2001. The investigation, which was later deemed a "whitewash" by federal lawmakers, uncovered no trouble even though Enron imploded a few months later in part because of scrutiny over the conflicts of interest that Watkins highlighted.

"We've seen a lot of interesting testimony, a lot of interesting people, a lot of allegations, a lot of lies, a lot of misinformation and some truth," Lay testified. "I would have never thought I'd be in federal court charged with criminal charges."