Enron Ex-Treasurer Says Lay Endorsed Accounting
By ALEXEI BARRIONUEVO
and VIKAS BAJAJ
nytimes.com
( Ken Lay WILL go to prison! Will the chimp Caesar pardon his old sagging ass? )
HOUSTON, March 22 — A former Enron treasurer testified today that Kenneth L. Lay presided over meetings in which top executives discussed the energy company's precarious finances and endorsed the continued use of complex accounting arrangements because they made it possible for Enron to meet Wall Street's earnings expectations.
Ben F. Glisan Jr., the former treasurer, provided some of the strongest testimony against Mr. Lay heard by the jury so far, as the prosecution entered the home stretch of its case against Mr. Lay, Enron's former chairman, and Jeffrey K. Skilling, the company's former chief executive. The government expects to finish its case by the end of the month.
Corroborating previous testimony by several witnesses, Mr. Glisan detailed several meetings from the months leading up to the energy company's bankruptcy in late 2001, in which executives scrambled to shore up the company's shaky finances while Mr. Lay continued to publicly tout Enron as a stable and successful operation.
At one point, Mr. Glisan testified that Mr. Lay assigned him to "feel out" credit ratings analysts to see how big an accounting charge the company could take without risking a debt downgrade, a figure he said he determined was $1 billion.
"It was backwards; we should have taken the charges that we needed to take and deal with the consequences with the ratings agencies," said Mr. Glisan, who has served about half of a five-year prison sentence for falsifying Enron's financial results.
Dressed in a dark suit, blue shirt and red tie, Mr. Glisan, 40, spoke confidently as he answered questions from the prosecutor, Kathryn H. Ruemmler. Mr. Glisan is expected to face cross-examination from defense lawyers today later this afternoon or early on Thursday.
Mr. Lay endorsed the continued use of structured finance transactions to help the company meet its earnings targets during a two-day meeting of senior executives in the affluent Houston suburb of the Woodlands in early September 2001 and then again in a telephone call with a credit ratings analyst on Oct. 12, 2001, Mr. Glisan testified.
"We rely on those transactions," Mr. Lay said during the September meeting, according to Mr. Glisan. "They are imperative for us to hit our numbers and we will continue to do them."
But in response to questions during an all-employee meeting in Houston on Oct. 23, 2001, Mr. Lay said the company would not use the transactions, having learned its lessons. "Plain vanilla is just fine," Mr. Lay said then.
Mr. Lay also encouraged employees to talk up Enron to friends and family and reassured them that the company was in sound financial health. Mr. Lay was similarly optimistic in a conference call with Wall Street analysts in September 2001, describing the company as "fundamentally strong," and said "the balance sheet is strong."
"The company certainly wasn't strong and the balance sheet wasn't strong," Mr. Glisan said today.
Another instance of Mr. Lay's advocating for aggressive accounting, Mr. Glisan testified, came during a meeting of the board's finance committee in August 2001. At the meeting, Mr. Lay joined managers in making an appeal to directors to raise the risk limits for Enron's fast-growing wholesale power division so the company could meet its earnings target.
It was only when Herbert Winokur, the chairman of the finance committee, questioned if the earnings target was established with the assumption that the risk limits would be raised did Mr. Lay back down, Mr. Glisan testified.
Much of Mr. Glisan's testimony today focused on the period after Mr. Skilling left the company on Aug. 14, 2001, citing personal reasons. Mr. Glisan described the mood among senior executives as bleak and growing worse with each meeting.
He recalled one particularly revealing remark from one colleague, John Lavorata, a former high-ranking trading executive, during the September 2001 retreat in the Woodlands. "Mr. Lavorata made the comment that he was glad he didn't have gun or he would shoot himself."
The defense contends that the fraud at Enron was limited and was conducted by a small group of executives led by Andrew S. Fastow, the company's chief financial officer. Defense lawyers have argued that Mr. Lay and Mr. Skilling were duped by these managers and Enron would not have failed had it not been for a loss of investors' confidence in the company.
As they have done with other prosecution witness, defense lawyers have argued that Mr. Glisan is not credible because of the part he played in the fraud.
The judge in the case, Simeon T. Lake III, has granted Mr. Glisan immunity to encourage him to testify without fear of being prosecuted for other crimes he may have committed at Enron. Mr. Glisan pleaded guilty to one count of conspiracy to commit fraud and went to prison in September 2003; he is under no obligation to testify in this trial.
Alexei Barrionuevo reported from Houston for this article, and Vikas Bajaj from New York.
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