Senators Fill Lay's Silence
Former Enron CEO Vilified on the Hill as He Takes the Fifth
By Susan Schmidt
Washington Post Staff Writer
Wednesday, February 13, 2002; Page A01
Former Enron Corp. chairman and chief executive Kenneth L. Lay withstood a torrent of criticism from angry senators yesterday before invoking his Fifth Amendment right and refusing to testify about his knowledge of the financial dealings that pushed his company into bankruptcy last fall.
Subpoenaed by the Senate Commerce Committee, Lay said he appeared with a "profound sadness" about what happened to the company he built and to its employees and shareholders and wanted to explain his side of the story.
But he said he could not ignore the advice of his attorneys not to testify under oath. "I am deeply troubled about asserting these [Fifth Amendment] rights because it may seem to some that I have something to hide," Lay said.
Lay became the fifth current or former Enron executive to refuse to testify before congressional committees investigating the company's downfall. The Justice Department and securities regulators also are investigating what Lay and other senior company executives knew about partnerships that an internal Enron board report said were used to inflate profits and hide losses.
In a related development yesterday, Enron told regulators that six members of its board of directors would resign in the next month and that its common stock has been rendered worthless by the company's bankruptcy.
Also, the company withdrew its request to the U.S. Bankruptcy Court in New York to use Vinson & Elkins, its longtime outside law firm, as special counsel on its reorganization. Several large investors criticized the request in light of the board report's conclusion that the law firm should have pushed for more disclosure about the partnerships.
Before being called to the witness table, Lay sat expressionless, attorney Earl Silbert at his side, as senator after senator spent over an hour vilifying his stewardship of the company.
"You are perhaps the most accomplished confidence man since Charles Ponzi," said Sen. Peter Fitzgerald (R-Ill.). "I'd say you're like a carnival barker, except that might not be fair to carnival barkers. A carny will at least tell you upfront that he's running a shell game."
Sen. Byron L. Dorgan (D-N.D.) said he wanted to know "how is it that 29 Enron executives at the top were able to earn $1 billion in stock sales in 2001 while people at the bottom lost everything."
"Obviously, Mr. Lay, the anger here is palpable," said Sen. John F. Kerry (D-Mass.). "Lives are ruined, many lives at the top and at the bottom." Kerry said that Enron had 2,832 offshore partnerships, and he questioned whether they were set up to evade taxes.
Sen. Gordon Smith (R-Ore.), noting that Enron's exotic structure and spectacular collapse shook the financial markets, suggested the company may be an anomaly. "This is not capitalism -- this is a conspiracy that may be a crime," he said.
The scathing criticism yesterday from senators of both parties was in sharp contrast to the reception Lay and Enron had received in Washington in past years. As one of the largest sources of political donations in corporate America, Enron was welcomed heartily on Capitol Hill and in the White House. Most of the members attacking Lay accepted campaign contributions from Enron in the past.
While most members kept clear of partisan rhetoric, Sen Ernest F. Hollings (D-S.C.), the committee chairman, derisively referred to Lay as "Kenny Boy," the nickname given him by his old Texas friend President Bush.
The only mild statements directed at Lay came from Sen. Kay Bailey Hutchison, a Texas Republican who has received $101,000 in contributions from Enron over the past decade. She said she wanted to hear from Lay about what a CEO can do when a company's stock is in free fall.
After Lay's short appearance, the committee heard from William C. Powers Jr., head of the special committee of Enron's board of directors that issued a report earlier this month condemning the company's board, management, and outside auditors and lawyers for failing to oversee the partnerships run by Enron's chief financial officer.
Powers said his report, damning as it is, examined only a small fraction of the partnerships formed by Enron. It dissected three of those entities, which held $3 billion of the $20 billion in Enron debts that were kept off its balance sheet, he said.
It is "crucial," he said, that the other partnerships be investigated by Congress or authorities with subpoena power. He noted that his committee was unable to learn the identities of the investors in the three partnerships, either from Enron's internal documents or the partnerships themselves, which refused to cooperate.
Enron auditor Arthur Andersen was unwilling to provide much information to the investigators and stopped cooperating altogether when Enron fired the company last month, Powers said.
He also said his committee did not examine possible insider trading by Enron executives, calling it a "very serious issue that needs to be investigated."
Lay was portrayed in the report as a lax manager who "bears significant responsibility for those flawed decisions" to create off-the-books partnerships and let others run them.
Powers said yesterday that both Lay and Jeffrey K. Skilling, Enron's chief executive, knew that Enron's dealings with the partnerships were not arm's-length transactions. They knew, as did Enron's board, he said, that the partnerships included hedges, supposedly designed to protect Enron, that were not real.
He also said material being sought by investigators may have been destroyed by Enron employees who shredded company documents.
Lay has been subpoenaed to appear tomorrow before the House Financial Services Committee, where he is again expected to refuse to testify.
Sherron Watkins, an Enron executive who warned Lay in a letter last summer that the company was in danger of imploding in a "wave of accounting scandals," is slated to appear before a House Energy and Commerce subcommittee tomorrow.
In a filing with the Securities and Exchange Commission, Enron said its departing directors are John Wakeham, Ronnie C. Chan, John H. Duncan, Robert Jaedicke, Charles LeMaistre and Paulo Ferraz Pereira.
Wakeham, Chan, Jaedicke and Pereira were members of the audit committee criticized in the Powers report as not overseeing the partnerships.
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