Petrocelli is going to get a nice payday out of this. While there is no doubt in my mind that Lay was culpable, Skilling was the master mind at Enron. If Fastow is truthful, the feds should have a decent shot at nailing him.
The following is an article that appeared in the WSJ a few weeks ago addressing the problems associated with a Lay prosecution.
Lay’s Last Months at Enron Probed
Federal Officials Explore Grounds for Criminal Case Against Former Chairman
By John R. Emshwiller
Wall Street Journal
February 2, 2004
Federal officials are exploring whether there are grounds to bring criminal charges against former Enron Corp. chairman Kenneth Lay regarding what he knew about the energy company’s festering, yet still largely secret, financial problems in the months before its collapse.
The critical period under examination began in August 2001, when Mr. Lay’s longtime lieutenant, Jeffrey Skilling, unexpectedly quit as Enron’s chief executive after only six months in the top job. Mr. Lay resumed the chief executive post that he had held for some 15 years and remained there through the company’s collapse in the fall of 2001 and eventual bankruptcy-court filing that December. Federal officials are comparing what Mr. Lay knew in those final months to his upbeat public remarks about the company’s condition, said people familiar with the probe.
Mr. Lay has denied any wrongdoing during his tenure at Enron. He and his representatives have said that his public remarks about the company in the last half of 2001 were made in good faith and that he was unaware of the scope of some of the problems facing Enron. In response to an interview request, a spokeswoman for Mr. Lay said her client had not further comment.
Federal investigators are interested in the months before the bankruptcy filing, in part because the departure of Mr. Skilling meant that Mr. Lay “can’t say that he wasn’t in charge” during that critical period, said one person familiar with the matter.
Mr. Skilling is also under federal criminal investigation and has denied any wrongdoing. However, the prosecutors believe that they might be in a position to file criminal charges against him within the next several weeks, said one person familiar with the probe. The government isn’t that close to making a decision, one way or the other, regarding Mr. Lay, said people familiar with the matter.
Mr. Skilling was widely credited with transforming Enron from a staid natural-gas pipeline company into a red-hot global energy trader. Many inside and outside the company believed that Mr. Skilling had a much better grasp than Mr. Lay of Enron’s complexities. Many of Enron’s most contentious financial activities – involving the use of off-balance-sheet entities to create hundreds of millions of dollars of reported income and hide like amounts of debt – occurred after Mr. Skilling became president and chief operating officer in 1997.
Though the 61 year-old Mr. Lay was Enron’s chief executive for some 15 years, he apparently didn’t leave many fingerprints. A recent report by a court-appointed examiner in the Enron bankruptcy case, for example, said that Mr. Lay, as well as Mr. Skilling, was an infrequent user of e-mail and “also apparently did not retain many documents.”
While federal investigators have long been interested in Mr. Lay’s activities in the months before Enron’s bankruptcy filing, their search received a boost recently with the guilty plea of former Chief Financial Officer Andrew Fastow. In return for a 10-year prison sentence, Mr. Fastow agreed to cooperate with the continuing criminal probe.
Mr. Fastow is in a position to give investigators specifics about conversations he had with other top executives, including Messrs. Lay and Skilling, said people familiar with the matter. It isn’t known what specifically prosecutors are looking at regarding Mr. Lay during the several-month period preceding the Enron bankruptcy filing. Nor is it known whether Mr. Fastow has tried to link Mr. Lay to any criminal activity.
However, questions have arisen about Mr. Lay’s conduct based on publicly know information. For instance, on August 2001, when Enron announced Mr. Skilling’s departure, Mr. Lay told The Wall Street Journal that the resignation had nothing to do with Enron’s falling stock price. Mr. Lay later told an internal company investigation that Mr. Skilling had cited worries about the falling stock price when he first told the chairman of his plans to resign, according to a memo prepared by Enron lawyers in connection with that investigation.
Various investigations have found that Enron had been using its own stock to bolster off-balance-sheet financial structures that were hiding from the public large losses on company investments. The drop in Enron’s stock price during 2001 badly undermined those structures. In his interview with company investigators, Mr. Lay indicated that he took Mr. Skilling’s concern over the falling stock price as an expression of personal frustration by the Enron president rather than a sign of trouble at the company.
A few days after Mr. Skilling’s resignation, Mr. Lay was contacted by Enron Vice President Sherron Watkins, who in a now-famous memo detailed her concerns about off-balance-sheet entities, known as the Raptors. The Raptors were helping the company hide millions of dollars of company losses from the public and Ms. Watkins thought the entities were on shaky ground. Subsequent outside investigators have said that the Raptors violated accounting standards and were improperly used to manipulate company financial statements.
As late as October 2001, Mr. Lay was expressing relative ignorance about the Raptor arrangement in another Journal interview, to the point of saying that he couldn’t even recall its name. In a later written reply to reporters’ questions, Mr. Lay said he hadn’t been trying to hide information but simply hadn’t remembered the name.
In a roughly two-week period after being contacted by Ms. Watkins, Mr. Lay pulled about $16 million out of Enron by borrowing money from the company and repaying the loans with some of his Enron stock, according to records obtained by the Enron bankruptcy examiner. Mr. Lay’s defenders have said that the stock transactions were pieces of a legitimate investment strategy. They have also said that Mr. Lay passed up other opportunities to dispose of Enron stock in 20001 on the belief that the share price would rebound. Prosecutors have been looking at Mr. Lay’s stock dealings but haven’t found a basis to bring criminal charges, said one person familiar with the probe. |
