Lay Sold Shares for $100 Million
The New York Times
February 16, 2002
By FLOYD NORRIS and DAVID BARBOZA
K enneth L. Lay sold $100
million in Enron
stock last year, the
company disclosed yesterday,
with a large part of that coming
from selling shares back to the
company after he was warned by
Sherron S. Watkins that the
company might collapse "in a
wave of accounting scandals."
The sales, disclosed in a report
filed by Mr. Lay with the
Securities and Exchange
Commission, included $20
million of shares sold in the three
weeks after Ms. Watkins, an
Enron official, sent her warning
to Mr. Lay.
It is not clear how much profit
Mr. Lay made on his sales, many
of which came while he was
encouraging Enron employees to
buy shares.
In Texas, a federal judge in
Houston appointed one of the
most aggressive class-action law
firms to lead the litigation of
shareholder suits against Enron.
And in Austin, a trove of
correspondence released after an open-records request
documented the extensive contacts between Mr. Lay and
George W. Bush when the president was governor of
Texas. [Page C1.]
Despite the sales, family members said yesterday that Mr.
Lay, who is 59, faced serious financial difficulties as he
struggled to repay loans taken out to make investments,
many of which have lost value.
Mr. Lay, Enron's former chairman and chief executive,
had previously disclosed selling $29.9 million in shares in
public markets from January through the end of July.
The new disclosures showed he took in $70.1 million from
selling Enron stock back to the company from February
through October.
A spokeswoman for Mr. Lay, Kelly Kimberly, said that Mr.
Lay had "remained confident in Enron's stock through
late 2001" and said "the vast majority" of the money he got
from Enron was used to pay loans that had been secured
by his stake in Enron. She said the sales were unrelated
to developments at Enron, including the Watkins letter.
Ms. Kimberly added that Mr. Lay and his wife did not
expect to have to file for bankruptcy. "While they are
experiencing liquidity problems, they believe they will be
able to work through them," she said of the Lays.
The family members, who spoke on the condition of
anonymity, said no money was being hidden offshore and
that Mr. Lay's wife, Linda, was being honest when she
said on the NBC "Today" show last month: "It's gone.
There's nothing left. Everything we had mostly was in
Enron stock."
While corporate executives are required to disclose most
stock sales by the 10th day of the month after the sale,
shares sold back to the company are not required to be
disclosed until the next year. Thus most of Mr. Lay's sales
remained unknown as Enron was collapsing last year.
Mr. Lay's sales after meeting with Ms. Watkins came
during a period when he was trying to reassure investors
and Enron employees that there were no problems at
Enron despite a falling share price and the Aug. 14
resignation of Jeffrey K. Skilling, who had been Enron's
chief executive for six months.
On Aug. 21, the same day he sold $4 million of stock to
the company, Mr. Lay told employees that one of his
highest priorities was to restore investor confidence,
adding that that "should result in a significantly higher
stock price."
On Sept. 26, in an online chat with Enron employees, Mr.
Lay said the stock was a good buy and added that he had
bought stock within the last two months.
Based on publicly available reports, that appeared to be
true, because he had exercised stock options without
reporting stock sales. But it is now clear that he had sold
many more shares than he had bought during the period.
Ms. Kimberly said yesterday that Mr. Lay continued to
hold some shares he had received from exercising options
last summer. If so, that means he sold other shares he
already owned.
On Aug. 13, the day before Mr. Lay reassumed the title of
chief executive, Enron granted 90,873 shares to him,
according to the filing released yesterday.
Mr. Lay's sales to the company temporarily halted after
Sept. 4 but then resumed in late October after partial
disclosures about partnerships run by Andrew S. Fastow,
then Enron's chief financial officer, had damaged
confidence in the company.
On Oct. 23, the day after Enron disclosed that the S.E.C.
had begun an informal inquiry into the company's
accounting, Mr. Lay resumed his sales, selling $6 million
in stock to Enron over four days. On Oct. 26, the day of
his final sale, he called Alan Greenspan, the Federal
Reserve chairman, regarding Enron's problems, and over
the next several days he called several Bush
administration officials.
The Bush administration did not intervene, and on Dec. 2,
after an attempted merger with Dynegy (news/quote) fell
through, Enron filed for bankruptcy protection.
Mr. Lay's sales to Enron in 2001 began early in the year,
with a $4 million sale on Feb. 1, when the share price was
$78.79. He sold another $4 million in shares on April 27
and then realized $8 million in May, $24 million in June
and $4 million in July. During those months he was also
selling stock in the open market.
It is not clear how much money Mr. Lay made from the
sales. His S.E.C. filings show that he and a Lay family
partnership exercised options in 2001 for 635,334 shares,
paying $12.2 million. That would reduce his net profits to
$87.8 million on his sales last year, less whatever the
other shares had cost him.
From 1998 through 2000, according to previous Enron
reports, Mr. Lay made annual profits from exercising
options of $13.1 million in 1998, $43.8 million in 1999
and $123.3 million in 2000. His salary and bonus from
1998 to last year totaled $22.5 million.
Enron has since disclosed that its profits were overstated
in all of those years, in large part because it improperly
concealed losses through the partnerships run by Mr.
Fastow.
All told last year, he and the family partnership sold
2,267,371 shares of Enron stock, realizing
$100,027,544.87, according to his S.E.C. filings.
Mr. Lay was still left with a large holding in Enron stock
when the company collapsed. His filing with the S.E.C.
yesterday stated that at the end of December he owned
1,012,223 shares of Enron stock in his own account;
100,000 shares in a family partnership; 20,337 shares in
his 401(k) plan; and 121 shares in an employee stock
ownership plan. Enron's stock closed yesterday at 26.5
cents.
Ms. Kimberly said that Mr. Lay's sales of stock to Enron
were made under a revolving credit arrangement with the
company under which he was able to borrow $4 million.
That appears to have been something of a formality,
because he borrowed the $4 million and then repaid it
with stock again and again.
Nearly everything Mr. Lay and his wife own is now up for
sale, the family members said, including residential
properties in Texas and Colorado, worth about $30
million. The family plans to keep a home worth about $8
million in the River Oaks area of Houston. Under Texas
law, a person who files for bankruptcy can keep a home,
no matter how much it is worth and no matter how large
are the losses suffered by that person's creditors.
Last week, Mr. Lay sold his minority stake in the Houston
Texans, an expansion National Football League team, for
an undisclosed sum. He and his wife also sold one of their
Aspen, Colo., properties for about $10 million, according
to Joshua Saslove, Mr. Lay's real estate broker. They had
bought the property in 1991 for about $1.9 million, but
the property had undergone extensive renovations in
1993. Another plot of land in Colorado the family owns
sold for about $2.15 million, Mr. Saslove said. There are
two other Aspen properties for sale, worth $6 million
apiece, he said.
Family members said that as 2001 began, 80 percent of
Mr. Lay's wealth was in Enron, including his stock,
options, deferred compensation plan and his 401(k)
savings plan. Ms. Kimberly said with Enron virtually
worthless, his net worth is down by 80 percent, but she
did not give an exact figure. A family member said
yesterday that Mr. Lay was worth about $400 million a
year ago.
While some Enron executives were able to request and
pull their deferred compensation out of Enron before it
collapsed, Mr. Lay did not request or receive any of his
deferred compensation, Ms. Kimberly said.
Though most of Mr. Lay's money was in Enron stock,
family members and associates say Mr. Lay did have some
other holdings. Because he was a director at Compaq, Eli
Lilly & Company (news/quote) and i2 Technologies
(news/quote), he owned stock in those companies that is
now valued at about $10 million.
In the last few years, Mr. Lay and his son Mark, 33,
invested about $1 million in two privately held technology
companies, EterniTV, an Internet start-up that delivers
video services over the Web, and EC Outlook, a company
that develops supply chain management software. Both
companies are struggling.
Mr. Lay also invested nearly $20 million in Questia, a
Houston company that sells access to online books. The
company's work force has been cut drastically in the last
year.
Asked whether Mr. Lay had a financial adviser, one close
friend said: "There were no advisers. He did it all himself."
One reason, a person close to the family said, was an
experience Mr. Lay had in the mid-1980's, after receiving
a huge payout when he helped merge Houston Natural
Gas and Internorth to create Enron. The windfall of more
than $3 million was largely invested in California real
estate by an adviser, he said, adding that much of that
money was lost when the real estate market tumbled.
Enron-Cooper Contract
Details of the contract between the Enron Corporation
and Stephen F. Cooper, whom the company's board has
elected as its acting chief executive, were disclosed
yesterday in a filing with federal bankruptcy court in
Manhattan.
Mr. Cooper's firm, Stephen Forbes Cooper L.L.C., will be
paid $1.3 million a year, payable in monthly installments
of $110,000 each, along with an additional $1.2 million a
year, also payable in monthly installments, for each
senior executive who works on Enron's restructuring. If
Enron is not liquidated and emerges from bankruptcy, Mr.
Cooper's firm will also receive a fee of at least $5 million; if
the company is liquidated, a fee will be agreed upon.
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