Enron Founder's Testimony Is Fiery

Former Enron chairman Kenneth L. Lay, third from left, shown with his wife, Linda. Lay clashed with the prosecutor during his cross-examination yesterday.
Former Enron chairman Kenneth L. Lay, third from left, shown with his wife, Linda. Lay clashed with the prosecutor during his cross-examination yesterday. (By Dave Einsel -- Getty Images)
By Carrie Johnson
Washington Post Staff Writer
Thursday, April 27, 2006

HOUSTON, April 26 -- A federal prosecutor accused Enron Corp. founder Kenneth L. Lay of trying to influence the testimony of witnesses in Lay's fraud trial and blasted him for failing to disclose a conflict of interest in the scorching start to his cross-examination Wednesday.

Lay, 64, grew furious at the government attack, pointing his finger and answering questions from Assistant U.S. Attorney John C. Hueston in an increasingly aggressive tone.

Hueston began his presentation by throwing back at Lay a quote from his own lawyer's opening statement three months ago: "By our deeds we are known." The prosecutor followed up with unrelenting questions designed to cast doubt on actions Lay took before the energy trader hurtled into bankruptcy protection in December 2001.

Government lawyers contend that Lay misrepresented Enron's health in a series of public statements to employees and investors in its waning months -- accusations that Lay, who once stood at the center of Houston society and hobnobbed with the Bush family, denied vehemently as a form of character assassination.

Hueston also presented quotes from one of Lay's defense lawyers, who told reporters earlier in the trial that former Enron treasurer Ben F. Glisan Jr. was "a performing monkey" who "contradicted the theory of intelligent design." Glisan, who pleaded guilty and is serving a five-year prison sentence, testified that he informed Lay about Enron's dire financial problems, providing some of the most potentially damaging testimony against him.

"Did you engage in character assassination of witnesses?" the prosecutor asked.

Lay replied sharply, "Are you considering yourself? I just want to make sure I understand who's on that list."

Hueston, who has drawn Lay's ire for years as the main investigator in the case against him, shot back: "Mr. Lay, I'm an assistant U.S. attorney. This is my job. You may call me anything you want."

A clutch of Lay's relatives and friends, including his pastor, spilled over into a second bench of the courtroom Wednesday, and spectators vied for a better view of what could be the pivotal moment in a case that launched an era of business scandals. How the eight-woman, four-man jury assesses the credibility of Lay and his fellow defendant, Jeffrey K. Skilling, who finished his own testimony last week, could be a decisive factor in its verdict. Both Lay and Skilling, 52, face more than a decade behind bars if they are convicted.

Hueston asserted that Lay had placed several phone calls to friends at Goldman Sachs Group Inc. in the course of the trial, seeking to find witnesses who would discredit the account of a Sept. 6, 2001, meeting given by former finance chief Andrew S. Fastow, one of the government's key witnesses. The prosecutor also claimed Lay had tried to reach another witness, risk analyst Vincent J. Kaminski, through an intermediary just days before he began his testimony. Lay said he "did not recall" whether Kaminski was a likely government witness, even though his name appeared on lists provided to the defense.

"You were trying to recruit people to say what you wanted them to say," Hueston charged. Lay retorted that he didn't have a "story" he was trying to get straight, as prosecutors claimed.

The prosecutor noted that Lay, who resumed day-to-day control of Enron after Skilling resigned abruptly in August 2001, received frequent updates on the company's finances. Lay said he did not recall those documents, partly because he said he depended on Skilling to notify him about trouble spots. Lay also said he performed only brief reviews of securities filings and scripts of presentations to investment analysts, an issue the government is likely to revisit.

Hueston also asserted that Lay violated the company's code of ethics by not disclosing to the board of directors his $120,000 personal investment in Photofete Inc., an online photography company that won about $400,000 in contracts from Enron. Lay said he had "forgotten about this investment altogether" until prosecutors used it against Skilling, who also invested in the company, in cross-examination last week. Lay conceded that he did not get board approval for his investment, which he characterized as small.

The afternoon's verbal fireworks stood in stark contrast to Lay's 2 1/2 days of more deferential direct questioning by defense lawyer George "Mac" Secrest. Lay, who has called himself a decentralized manager, repeatedly interrupted his own lawyer to correct him on minor points and to offer extended lectures about business issues, even as jurors' attention wandered and they failed to respond to his jokes. The defense drew emphatic warnings from the judge this week to accelerate the pace and focus on relevant information.

Hueston, who is likely to continue questioning Lay into next week, has yet to focus in depth on one of the most inflammatory issues in the case: Lay's use of an Enron credit line to sell $77 million worth of stock back to the company in its final weeks.

Earlier Wednesday, jurors heard Lay talk about mounting financial pressures as banks sought to call in tens of millions of dollars in loans he used to buy stock. Lay testified he could not unload his $4 million Houston penthouse; three Aspen, Colo., homes; and properties in Galveston, Tex., quickly enough, leading him into "forced sales" of stock back to the company in late 2001. Lay said he received advice that the sales comported with the law, and his lawyer pointed out twice that he had not been charged with insider trading. He testified that he had tried to reach a settlement over the $7.5 million he still owed Enron but added in an impassioned tone, "it was not finalized because John Hueston blocked that deal."

Even so, the sales could prove inflammatory, as underscored by a loud whisper by one spectator to his wife when the numbers were unveiled. "Seventy-seven million dollars!" he exclaimed.

On a positive note for Lay, the judge indicated that he is likely to reject a government proposal to argue that Lay engaged in a pattern of turning a blind eye to trouble, based on a 1987 trading scandal in Enron's New York operations. Also Wednesday, jurors unanimously agreed to extend court hours after the judge warned them the case was likely to eat up at least three more weeks. The jurors used the words "bear hug" to describe their decision, a joking reference to illegal, unwritten agreements prosecutors say Enron insiders employed.

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