Prosecutors Aim to Undermine Lay's Claims
Thursday April 27, 2006
By Erin Mcclam, AP National Writer
Prosecutors Aim to Undermine Lay's Claims That Short-Sellers, in Part, Caused Enron Collapse
HOUSTON (AP) -- Federal prosecutors aimed on Thursday to undermine Enron Corp. founder Kenneth Lay's testimony that short-sellers were partly to blame for Enron's collapse in 2001 by showing that Lay's own son bet Enron's stock would drop.
Lay and former Enron Chief Executive Jeffrey Skilling contend that short-sellers had mounted a concerted attack on Enron stock that year that helped drive it into bankruptcy protection. Selling stock short is essentially betting the price will drop.
On the second day of Lay's cross-examination at his fraud trial, prosecutor John Hueston played a tape of Lay telling Enron employees in October 2001 that Enron was under attack "just like America's under attack by terrorism."
Lay said he was referring in that remark to short-sellers and other forces damaging Enron's stock price. During his opening statement, Lay lawyer Michael Ramsey had referred to the short-sellers as "vultures."
The defense contends there was no fraud by Lay and Skilling, but that short-sellers, along with a nervous stock market, negative press and theft by Enron's finance chief, sank the company.
Hueston displayed for jurors a brokerage statement showing Lay's son Mark shorted Enron stock four times in March 2001. Short-sellers aim to borrow stock at a high price, sell it on the market, buy it back at a lower price and pocket the profit.
"He wasn't a vulture, was he?" Hueston asked. "He wasn't trying to kill Enron in 2001, was he?"
"I would think not," Lay answered.
The questioning early Thursday, while still contentious, was somewhat less tense than on Wednesday, when Lay admitted he tried to contact potential witnesses during his fraud trial -- including one who wound up testifying against him.
Lay acknowledged he tried to go through a friend to contact Vince Kaminski, a former top risk analyst at Enron, nine days before Kaminski testified for the prosecution. A federal prosecutor suggested Lay was trying to get his story straight.
"I was trying to reach Vince Kaminski a long time ago before I even knew he would testify," Lay said Wednesday. "I was trying to reconnect with Vince, to talk to him about some issues I wanted to talk to him about."
Kaminski told jurors he got a cold reaction when he told Lay and other executives in October 2001 that Enron needed to "come clean" on questionable financial structures in the weeks before it crashed into bankruptcy proceedings.
Lay, who is on trial along with Skilling, said he was not aware Kaminski was on the government's witness list. He has appeared on that publicly available list since November.
Lay also admitted he tried to call two Goldman Sachs & Co. executives during the trial to talk about a September 2001 meeting about Enron. Lay and former Chief Financial Officer Andrew Fastow have given contradicting testimony about the meeting.
The Goldman executives had been on a defense witness list. Lay said he called the executives in March -- the same month Fastow testified -- but he said he didn't try to align their memories of the meeting with his.
"I was just trying to make sure that all of my facts were as accurate as they could be," Lay said from the witness stand, noting further that Fastow "gave a fake version of that meeting."
Fastow testified he and Lay met with Goldman to discuss restructuring Enron at the same time Lay was telling employees and reporters that the company was sound. Lay says the meeting was about Enron's vulnerability to a takeover.
Lay faces six counts of fraud and conspiracy from when he reprised the role of CEO following Skilling's abrupt 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 U.S. District Judge Sim 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.
Lay's cross-examination was to continue Thursday and was likely to stretch into Monday.
Lake has indicated to lawyers this week that he is frustrated with the slow pace of the trial, and he gave jurors five options for ways to fit in more testimony.
They ultimately chose to start their days a half-hour earlier, at 8 a.m., and to shorten their lunch break.
AP Business Writer Kristen Hays contributed to this report.
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