Prosecution Accuses Lay of Trying to Tamper With Witnesses

Lay's testimony was meant to show jurors that his once-substantial worth has been drained by the government investigation and indictment.

One of the issues examined earlier Wednesday is at least $200 million in "goodwill" adjustments to Enron's third-quarter 2001 earnings. Goodwill describes the value of an asset in addition to its physical attributes -- in other words, its non-tangible value. The goodwill adjustments would have been a negative -- or an "impairment" -- on Enron's balance sheets.

In its indictment, the government alleges that Enron faced an additional $700 million in goodwill charges related to a water company it owned in England that Lay did not disclose.

Lay has maintained that Enron accountant Arthur Andersen signed off on everything in the earnings release.

"Did you ever make any misrepresentation to Arthur Andersen to conceal $700 million in goodwill impairment?" Secrest asked.

"I did not," Lay answered.

In its indictment, the government charged that Lay "while expressing candor failed to disclose numerous dire facts about Enron."

Secrest zeroed in on an Oct. 23, 2001, call with securities analysts, designed to bolster the market after three damaging Wall Street Journal articles about Enron's off-balance-sheet partnerships, known as the LJMs.

The SEC had launched an informal inquiry into the accounting of the LJMs, and Lay did not address them in the call, although they would have been of primary concern to the analysts.

"That was on the advice of our various attorneys," Lay testified. "They said there were some things I should not get into. Questions were coming up in the week before, in the Wall Street Journal and elsewhere, and we didn't have all the facts on them. They didn't want me making a statement until we really knew all the facts."

Later, Lay was asked why he told investors that Enron's liquidity was "better than fine, it is strong."

"I was relying on people who I thought were experts in the company," Lay said. "Our CFO and our treasurer." In addition to Glisan, former chief financial officer Andrew Fastow has pleaded guilty to fraud charges.

Lay testified that he pushed for more openness in Enron's financial statements, sometimes against the advice of his colleagues.

Lay has testified that when he took over for Skilling, he wanted to "clean up" the company's balance sheet -- making a point to say he did not believe there was anything illegal in the company's accounting, but that its complexity was confusing Wall Street analysts, causing a lack of faith in Enron.

The third-quarter 2001 earnings release included a $1.2 billion reduction in shareholder equity, which the government contends was the result of an accounting error the company tried to hide. Lay said he was advised by Enron executives, such as accounting chief Richard A. Causey -- who has pleaded guilty to fraud and is cooperating with the government -- not to include the amount in the earnings release. Instead, Causey wanted to wait and report the number in the company's quarterly required SEC filings. Earnings releases receive much more publicity than SEC filings, where information damaging to a company can be buried.

"I decided I wanted to get everything out that we knew about," Lay testified.