Enron Corp. founder Kenneth Lay told jurors in his fraud and conspiracy trial that he thought the company could move past its problems in October 2001, when it announced massive losses and a $1.2 billion writedown in shareholder equity.
But the real firestorm came in the next six weeks, Lay said, led by vexing media scrutiny of business issues he considered old news and diminishing investor confidence.
Lay, in his second day testifying in his own defense, said Tuesday he believed Enron was fundamentally strong. He said he heard no mention of Enron possibly seeking bankruptcy protection even when some of the nation’s top bankruptcy lawyers sat in on a weekend executive meeting four days before Halloween 2001.
“I don’t remember the subject of bankruptcy coming up anywhere by anybody until after that,” he said.
His recollection contradicted prosecution testimony from former Enron treasurer Ben Glisan Jr., who told jurors he told Lay days earlier that “bankruptcy is inevitable.”
The government says Lay and his co-defendant, former Enron Chief Executive Jeffrey Skilling, conspired with each other and their staff to hide accounting tricks and flailing business ventures until the company collapsed into bankruptcy proceedings in December 2001.
Both defendants say there was no fraud at Enron other than that committed by former Chief Financial Officer Andrew Fastow and a few others, who skimmed millions from secret scams. Lay, who was to continue testifying Wednesday, continued to insist that Enron collapsed in a storm of bad press, a skittish post-Sept. 11 market and Fastow’s greed.
At times he grew agitated, particularly when he blamed the media for undercutting his company’s strength rather than fallout from Fastow-run partnerships that conducted deals with Enron or the shutdown of four financial structures known as Raptors. Raptors accounted for more than half of a $1 billion charge the company reported in its earnings announcement in the third quarter on Oct. 16, 2001.
The Fastow partnerships dominated a string of Wall Street Journal stories published in the days after Enron announced its quarterly earnings, which Lay said ignited a blaze of scrutiny.
Lay noted Fastow had sold his interest in those partnerships – which earned the ex-CFO tens of millions of dollars on top of his compensation from Enron – the previous summer. Lay considered the partnerships an “old dead issue” by the time they captured the newspaper’s interest.
Fastow pleaded guilty to two counts of conspiracy in January 2004 in part for using those partnerships to help Enron manipulate earnings and hide debt. Lay, who has pegged Fastow as a liar and thief who stole money through scams he hid from the ex-chairman and Skilling, says the partnerships were proper.
Lay also said the Raptors, which were intertwined with Fastow’s partnerships, were “history” when they came under scrutiny from regulators that fall after Enron unwound them.
Glisan, who is in prison for creating the first of the Raptors, testified that the structures hid Enron losses by warehousing poor assets and investments. Lay and Skilling deny they were improper.
“These transactions have gotten so much attention in the last four years,” Lay told jurors, referring to how they have figured into criminal charges against him and Skilling. “But they really got so little of our attention those two years” they were in use before Enron crashed.
When defense lawyer George Secrest asked who gave transactions such names as Raptor, Lay laughed and said, “Beats the hell out of me,” but few jurors laughed with him.
Lay has yet to be cross-examined.
Testimony in the three-month trial could last another three weeks, lawyers told U.S. District Judge Sim Lake after jurors were dismissed for the day. The judge said he may lengthen the court day to pick up the pace.
Lay faces six counts of fraud and conspiracy related to his tenure as CEO following Skilling’s resignation in mid-August 2001. Skilling faces 28 counts of fraud, conspiracy, insider trading and lying to auditors related to his activities from 1999 to 2001.
Once jurors in the Lay-Skilling case begin deliberating, Lay faces a trial without a jury before Lake on bank fraud charges for allegedly reneging on an agreement with banks not to use $75 million in loans to buy Enron stock on margin.