Lay Finishes Testimony in Enron Trial

By Frank Ahrens
Washington Post Staff Writer
Tuesday, May 2, 2006 1:15 PM

HOUSTON, May 2 -- It was a scrap to the finish as Kenneth L. Lay concluded testimony in his fraud trial Tuesday, with the Enron founder accusing federal prosecutors of intimidating witnesses and the government countering that Lay contradicted his earlier testimony.

After a leisurely morning of friendly questioning from his defense lawyer, attempting to rebut government charges raised during three days of cross-examination, the prosecution pounced as soon as Lay was handed back for final questioning.

Assistant U.S. Attorney John C. Hueston sank his teeth into the exchange, accusing Lay of flouting Enron's code of ethics -- a code Lay authored.

"Rules were important but you didn't follow them, right?" Hueston asked.

"Rules are important but you should not be a slave to rules, either," said Lay, who is charged with six counts of fraud for what the government alleges is his role in the 2001 collapse of the energy giant.

Lay tried to tussle with the dogged Hueston, saying he had intimidated former Enron executives who testified for the prosecution.

Of one, former Enron treasurer Benjamin Glisan, Lay said: "I think he was put in solitary confinement so you could work your will." Hueston stated that Glisan had received no deal from the government for his testimony. Glisan has served two years of a five-year sentence following a guilty plea for fraud.

Lay wrapped up his nearly six days on the witness stand this morning taking a final question from his lawyer, George "Mac" Secrest: "Did you love Enron?"

"I loved Enron very much and Enron's employees very much," Lay testified. "The most painful thing in my life was watching Enron" enter bankruptcy.

Character witnesses for Lay -- including Houston Astros owner Drayton McLean--are scheduled for the rest of the day, to be followed by technical witnesses discussing the more complex elements of testimony. This is the 14th week of the trial.

After that, there will be a government rebuttal and closing statements from each side before the jury gets the case. Lay's testimony came after former Enron chief executive Jeffrey K. Skilling spent eight days on the witness stand in the trial. Skilling is charged with 28 counts of fraud, conspiracy and insider trading. The government alleges that the pair conspired to hide Enron's mounting losses. When Skilling abruptly left the company in August 2001, Lay took over the chief executive's job through its bankruptcy in December 2001.

Before the pair testified, conventional wisdom was that the prickly Skilling could implode on the stand while the avuncular Lay, the public face of Enron, would charm the jury.

Nearly the opposite transpired. Skilling battled at times with federal prosecutor Sean Berkowitz but largely kept his cool, appearing by turns professorial, impassioned and even jovial. Lay, by contrast, grumbled at his own lawyer and yelled at Hueston, appearing anything but avuncular. The government also charges Lay and Skilling with dumping tens of millions of dollars worth of their Enron stock in 2001 when they knew the company was doomed, while lying to investors and Wall Street analysts about the health of the company, saying it was fundamentally strong.

Hueston seized on the latter point in his questioning Tuesday, jumping on a slip of the tongue by Secrest, who said Lay came back to Enron to "revive" the company in August 2001.

"If you testified that the company was in the best shape ever, it couldn't possibly be in need of reviving, could it?" Hueston said, working to destroy Lay's credibility -- his strategy through all of his cross-examination.

Hueston reminded Lay that, at the beginning of 2001, Enron had predicted its stock -- which hit a high of about $80 per share -- would crack $120 per share.

"You did nothing to dispel that lofty projection when you came back on board in August, did you?" Hueston said.

"It was very naïve to think that analysts were still holding [the $120 per share figure] in their heads," Lay said.

There was a light moment in court following another slip of the tongue, this one Lay's.

During cross-examination, Hueston reminded Lay that his lead lawyer, Michael Ramsey, had publicly referred to Glisan as a "monkey."

Later, Secrest had Lay clarify that Ramsey had more fully called Glisan a "trained monkey."

"Did that make the slur any better?" Hueston asked Tuesday.

"I'm not trying to defend my monkey -- I mean, my attorney," Lay said, prompting sustained laughter in the courtroom and from Lay himself.

"I'm sure glad Mr. Ramsey's not here today," Lay said. Ramsey is recovering from two operations last month to implant stents to open arterial blockage.

Earlier in the morning, Lay testified that he lost $37 million in net worth in one month in 2001 as his company's stock plummeted.

Lay also attempted to refute government charges that he tried to tamper with prosecution witnesses during the trial, saying that it has been "very difficult, almost impossible" for his lawyers to talk to potential witnesses, saying the government has intimidated them into not talking.

Lay said he was deeply in debt and sinking fast as the year went along because "90 percent" of his net worth was tied up in Enron stock.

During its cross-examination, the government attempted to show that Lay continued to live the high life through 2001 -- paying $200,000 to charter a yacht for his wife's birthday, for instance -- and drew out the last $1 million of his personal Enron credit line days before the company declared bankruptcy.

"You had a liquidity problem and Enron had a liquidity problem," Hueston said yesterday.

"Yes," Lay said.

"And you saw to it that you were taken care of before the employees were in those competing interests," Hueston concluded.

Tuesday, under examination by his defense lawyer, George "Mac" Secrest, Lay said that he emptied the credit line not to continue living it up, but merely to continue living. By November 2001, Lay testified, he was afraid he and his wife, Linda, might have to declare bankruptcy, just like Enron.

"The [Enron board of directors] was saying they wanted me to continue to lead the company into, through and out of bankruptcy," Lay testified. "I was trying to give us a little financial cushion. We were in a financial crisis as well as the company was having a financial examination."

During cross-examination, Hueston said that Lay sold more than $70 million of stock back to the company during 2001 to raise money and pay off debts -- sales that would not have to be reported until the end of 2001. Hueston maintained that Lay was intentionally hiding his massive stock dump from investors as the company spiraled down.

Hueston said that Lay had plenty of other non-Enron stock he could have sold. Lay testified Tuesday that Hueston failed to note that Lay did sell about $13 million worth of non-Enron stock during 2001.