Attitude, Finances May Have Hurt Lay

HOUSTON, May 1 -- When trouble befell Enron Corp. in the fall of 2001, a pollster advised the energy company to "take advantage" of its "most powerful weapon," genial chief executive Kenneth L. Lay.

But as Lay, 64, prepares to exit the witness stand in his fraud trial Tuesday, the central question is whether his appearance did more harm than good.

On Monday, with the government using his personal finances against him to sometimes brutal effect, Lay tried to fend off accusations that he chose to quietly sell more than $70 million in stock back to Enron, rather than liquidate real estate and other investments as the company spiraled downward.

Assistant U.S. Attorney John C. Hueston painted Lay as a man so addicted to an extravagant lifestyle, and so centered on his personal needs, that he "maxed out" his corporate line of credit a day before Enron's ill-fated merger with rival Dynegy cratered. Five days later, in December 2001, the company filed for Chapter 11 bankruptcy protection, and thousands of employees lost their jobs and retirement savings.

For his part, Lay insisted that he always believed Enron's stock price would swing back upward and that, as banks began to call in nearly $100 million in personal debts in 2001, he was "hoping and praying that each and every time would be the last time" he would be forced to sell stock.

In one of the biggest surprises of the 14-week-old trial, Lay never appeared entirely comfortable in five days on the witness stand, particularly for a man who once moved easily among world leaders, corporate titans and religious figures. His lead attorney, Michael W. Ramsey, left the case midstream with heart trouble, requiring the defense to regroup. For the first couple of days of his testimony last week, Lay struggled to find the right tone.

Instead, he sometimes seemed far more aggrieved by his treatment by the government than grief-stricken over the plight of Enron workers and investors who lost billions of dollars because of Enron's demise.

"There may have been very few people in history who have been more investigated than I have and my family," Lay said last week, enumerating at least six federal agencies that have probed his finances. "Who knows how many people, how many resources, how many dollars?"

Last week, he reacted irritably to a question from his own attorney about Joanne Cortez, a former Enron employee who told the jury she cried after learning about Lay's stock sales.

"I didn't know her before, but she of course did testify in this trial, and I suppose that's the reason we're having to respond to all these matters," he said testily.

Lay repeatedly accused prosecutors of misleading the jury, taking his statements out of context and spending hours on issues that do not form the basis of six criminal charges that could send him to prison for more than a decade if he is convicted. Chief among them, Lay said, were his financial dealings.

Monday afternoon, a few jurors watched his wife, Linda, as Lay forcefully argued that she had made an appropriate decision to sell 500,000 shares of Enron stock held by their family foundation the morning of Nov. 28, 2001. Prosecutors claim the sale came hours before the death of the Dynegy merger was publicly acknowledged. No one has been charged with wrongdoing in the transaction, Lay testified.

If jurors' attention wandered last week as prosecutors explored the role Lay played in Enron's accounting decisions, they focused intently Monday when Hueston displayed the trappings of Lay's lifestyle, including a $20,000 antiques bill, a $193,000 voyage on a yacht named Amnesia and millions of dollars in real estate holdings.

A young female alternate juror, who has rested her head in her hand for days, snapped to attention and took notes as the prosecutor argued that Lay could have unloaded a $10 million Aspen, Colo., home rather than his Enron shares. A buyer paid cash for the property two days after it went on the market in January 2002, Hueston said. "Cash," the juror mouthed.

"We were living the American dream," Lay said. "It was a very expensive lifestyle, a lifestyle that's difficult to turn on and off like a spigot."

But Lay's temper, which he unleashed on the prosecutor last week, remained under control Monday. And his humor, which had struggled to find an audience last week, hit the mark several times. When Lay pointed out that he paid far more to celebrate his wife's birthday than his own, family members laughed and several jurors cracked smiles.

Under a second round of questioning from defense lawyer George "Mac" Secrest on Monday afternoon, Lay also provided an alternate and less damaging explanation for stock sales by his son Mark in March 2001. Lay told jurors that his son's broker had made a decision to sell Enron shares short, that is to make a sale betting that the stock price would fall, as a result of a misunderstanding with his son. Prosecutors had used Mark Lay's trades last week to mock the defense argument that short selling had contributed to the market panic that killed Enron.

The prosecutor repeatedly accused Lay of shirking responsibility for financial decisions and securities filings at the same time he earned $220 million in Enron's final years. Lay, who once thanked his lawyer for "correcting" him Monday after an uneasy rapport last week, unyieldingly argued that he had relied on subordinates as a "delegator" and a "decentralized" leader.

"The corpse is on the gurney now Mr. Hueston, and you're carving it up any way you want to carve it up," Lay testified. "I didn't have that luxury when I was right in the middle of battle."