Prosecutor: Lay Ignored Employees' Worries
Monday May 1, 2006
By Kristen Hays, AP Business Writer
Prosecutor Tries to Show Lay Ignored Employees' Concerns About Accounting, Ethics
HOUSTON (AP) -- Enron Corp. founder Kenneth Lay ignored employees' concerns about accounting integrity in the weeks before the company collapsed in 2001, a prosecutor sought to show Monday.
On the third day of cross-examination in his federal fraud and conspiracy trial, Lay again flashed his temper to prosecutor John Hueston, comparing Hueston's second-guessing of his decisions during Enron's downward spiral to carving up a corpse.
Lay was confronted with e-mails and survey responses from October 2001 in which employees raised questions about accounting "trickery" and Enron's business ethics.
One veteran Enron employee said, "I've lost all respect for Enron senior management" and suggested it was criminal for Enron executives to exercise stock options when they knew accounting tricks were being used to manipulate earnings.
At the time, about six weeks before Enron sought bankruptcy protection, its stock price was falling fast, and The Wall Street Journal was raising questions about unusual business partnerships created by Enron Chief Financial Officer Andrew Fastow.
When prosecutor John Hueston asked Lay why he did not question Fastow directly, Lay responded that "I was getting information from all sides" and said other senior officers thought the Journal and others were on a "witch hunt" against Fastow.
Lay bristled as he told Hueston repeatedly that it was easy in hindsight to second-guess his decisions.
"The corpse is on the gurney now, Mr. Hueston, and you're carving it up any way you want to carve it up," Lay said. "I didn't have that luxury when I was right in the middle of battle."
Hueston also questioned Lay about positive remarks he has made about Drexel Burnham Lambert Inc., the junk bond-dealing Wall Street firm that went bankrupt in 1990 after pleading guilty to illegal securities trading.
Lay said Drexel had made significant contributions in financial innovation and said that "failure is not equated with criminal activity, or does not need to be equated with criminal activity."
"They had a run on the bank back in the 1980s based on a number of events that occurred," Lay testified. He has used the "run-on-the-bank" phrase to describe Enron's collapse, blaming short-sellers, Fastow and bad press, among other factors.
Lay returned to the witness stand in the 14th week of the government's premier trial to emerge from its sprawling investigation of what led to Enron's spectacular collapse in December 2001.
The ex-chairman's performance during four days of testimony last week was in stark contrast to that of his co-defendant, former Enron Chief Executive Jeffrey Skilling. Lay, a generally affable man, was openly combative with Hueston, the prosecutor who secured the indictment against him. Skilling, known to be more temperamental, kept his anger largely in check, despite a few flare-ups during his 7 1/2 days on the stand.
Sam Buell, a former prosecutor with the Justice Department's Enron Task Force who is a visiting professor at the University of Texas School of Law, said Hueston should wrap up his cross-examination fairly quickly Monday.
"To the extent Lay thought he could get this jury to the point where they wouldn't take the government's case seriously after his testimony, that's not happening," Buell said. "I would think at this point, the key for the government is to make the one or two critical additional points left to be made and sit down. A too-long cross can turn this back into Lay's favor."
Lay and Skilling are accused of repeatedly lying to portray Enron as healthy when the government alleges they knew the company's purported success stemmed from accounting tricks that hid debt and inflated profits.
The two men counter that no fraud occurred at Enron other than a few executives who stole money through secret scams behind their backs. They attribute Enron's descent into bankruptcy protection to a combination of bad publicity and lost market confidence.
Last week lawyers on both sides told U.S. District Judge Sim Lake that they expect testimony to wrap up by May 11, followed by closing arguments on May 15. The defense teams expect to rest their case this week, and then the government aims to call a string of rebuttal witnesses the following week.
Skilling faces 28 counts of fraud, conspiracy, insider trading and lying to auditors, while Lay faces six counts of fraud and conspiracy.
Lay also faces a separate trial on bank fraud charges unrelated to any of the issues in the current trial. That case will be tried before Lake without a jury during deliberations of the conspiracy case.
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