Enron Founder Blames Ex-CFO
Wednesday, April 26, 2006
HOUSTON, April 25 -- Former Enron Corp. chairman Kenneth L. Lay told jurors in his fraud trial Tuesday that he never doubted the integrity of the company's finance chief until a day in late October 2001, when he was "shocked" to learn that Andrew S. Fastow had collected $45 million from secretive business partnerships.
The disclosure that Fastow had profited handsomely contradicted previous assurances that his moonlighting would not get in the way of his responsibility to Enron, Lay testified. A day before Fastow left the company, Lay told employees he was certain his chief financial officer "operated in the most ethical and appropriate manner possible."
Less than 24 hours later, Lay said, he refused to give Fastow a severance package with a curt: "Hell no, Andy. Pack up your stuff and leave the building."
"You realize all of a sudden maybe Andy Fastow had not been what he represented himself to be over the last two or three years or so," Lay testified.
Lay, 64, has blamed improper dealings by Fastow, a campaign by short sellers to drive down Enron's stock price and aggressive media reports for Enron's spiral into bankruptcy court. He faces six fraud and false-statement charges for touting the business at the same time government lawyers claim he knew it was hurtling toward collapse. Lay contends he believed then -- and still believes -- that Enron was "fundamentally sound."
In his second day on the witness stand, Lay answered questions in a firm voice as the jury looked on attentively. The sometimes-plodding court session was marked by no fewer than three admonitions from U.S. District Judge Simeon T. Lake III to pick up the pace. Lay is likely to remain on the witness stand at least through this week.
"What's the relevance of this?" the judge asked Lay attorney George "Mac" Secrest on Tuesday. "You're wasting a lot of time. I want this direct to move along."
After court ended, the judge raised the prospect of extending the trial's hours or cutting back on the 90-minute lunch break to accelerate the case, now in its 13th week.
Lay walked jurors through a difficult period in October 2001, when Enron's stock price marched steadily downward as news accounts raised questions about Fastow's partnerships and more than $1 billion in write-downs of company assets. The articles were "absolutely destroying the confidence of our shareholders and others at a time when we [thought] the company [was] doing extremely well," Lay testified.
Late that month, Lay said, analysts who placed bets that Enron's stock price would fall jumped into the fray. Lay took issue with one analyst in a conference call because "he was trying to plant some very deep, serious seeds of doubt," he said. "He just continued to go on with it in a way that very clearly was meant to contaminate that call."
In an issue that prosecutors are likely to probe on cross-examination, Lay said he didn't immediately recall the name of the Raptors, a Fastow-controlled business partnership that helped bring down Enron, when he was queried about it in the fall of 2001.
"These transactions, which have gotten so much attention the last four years, they really got very little attention the two years they existed," Lay testified. "We didn't realize at the time they would become so important for the history of Enron and the history of the era."
Secrest used the issue to poke fun at the names of some of Enron's deals. "Remember Talon, Porcupine -- who comes up with these names?" the defense lawyer asked.
"Beats the hell out of me," Lay replied, drawing laughter from spectators.
"The people that need to be involved know what it is," Lay continued, on the subject of the business partnerships. "Those people who don't need to be involved don't know what it is."
Lay also testified that he never saw an August 2001 document suggesting that his fellow defendant, Jeffrey K. Skilling, thought Enron's underperforming international assets, pet projects of Lay's, might fetch $5 billion less than their value on Enron's books. Prosecutors claim that Lay failed to disclose their loss in value to shareholders.
He only briefly addressed his use of a company-issued line of credit, which he used to the tune of $70 million in Enron's waning months as he told employees the stock was "an incredible bargain." That issue could take center stage as early as Wednesday, when Lay prepares to argue that he sold company stock only when he was compelled to pay margin calls on volatile investments in the technology downturn.