Lay Blames Fastow, Short Sellers, for Enron Collapse (Update2)
April 24 (Bloomberg) -- Former Enron Corp. Chairman Kenneth Lay denied committing the fraud that destroyed his company, blaming a thieving subordinate, short sellers and journalists.
Lay took the witness stand today in his own defense as his federal fraud trial entered its 13th week in Houston. The 64-year- old Enron founder testified his biggest mistake was hiring former Chief Financial Officer Andrew Fastow, who pleaded guilty to fraud charges and faces 10 years in prison.
``It was what Andy did and hid and what the Wall Street Journal with the help of short sellers wrote that kicked off a run on the bank that we just couldn't stop,'' Lay said. ``I accept full responsibility for everything that happened at Enron. Having said that, I can't take responsibility for illegal acts that I had no knowledge of.''
Lay and former Chief Executive Officer Jeffrey Skilling, 52, are accused of conspiring to defraud investors in Enron, once the seventh-largest U.S. company by sales. Skilling also is accused of insider trading and faces 25 years in prison.
``This is the performance of his life,'' said Brian Wice, a Houston criminal appeals lawyer, referring to Lay. ``If he does not hit his mark on the first take and get the jury to look past what they saw in the first half of the trial, he is going to spend the rest of his life as a ward of the federal government.''
Liar and Thief
Lay called Fastow, 44, accused of stealing $25 million from Enron through off-the-books entities, a liar and a thief.
``I think it all begins with the deceit of Andy Fastow and probably not more than one or two other people,'' Lay testified. ``A person at the very heart of our organization, the chief financial officer, was basically stealing from the company. And stealing before there ever became something called LJM or Raptors.''
Lay also said stock traders who bet on the decline of a security, known as short sellers, conspired to bring down Enron.
In January 2001 short sellers got together in a ``bears in hibernation meeting'' to decide what company they would target for the year, Lay said. ``And Enron was the target.''
Finally, he said Enron was targeted by two Wall Street Journal reporters who were being fed documents about Fastow's activities and decided to go after Enron. He didn't name the reporters. Two Journal reporters covering Enron at the time were Rebecca Smith and John Emshwiller. Spokeswoman Jennifer Dauble of Dow Jones & Co., owner of the Wall Street Journal, didn't have an immediate comment.
These three elements combined with a declining economy, the terrorist attacks of Sept. 11, 2001, and the bursting of the technology-stock bubble, caused Enron's collapse, Lay said. He said he achieved the American dream in reaching the top of Enron.
Nightmare
``I also experienced the American nightmare,'' he said.
Defense attorney Mac Secrest's first question to Lay was how he felt sitting in the defendant's chair for 13 weeks.
``It's been very interesting,'' Lay said. ``We've seen a lot of interesting testimony, a lot of interesting people, a lot of allegations, a lot of lies, a lot of misinformation and some truth.''
Enron's market value reached $68 billion before its bankruptcy wiped out thousands of jobs and at least $1 billion in retirement funds. Investors suing over the company's collapse claim accounting fraud led to at least $25 billion in losses.
Lay is testifying without the guidance of his lead lawyer, Michael Ramsey, a noted Houston criminal defense attorney. Ramsey, 66, had heart surgery on March 24 to clear a blocked artery and has not been available to represent Lay. Secrest, a Houston criminal appellate specialist, is conducting Lay's direct examination.
Image Transformed
Wice, the Houston attorney, observed Lay as a public figure for more than a decade and said his image has transformed.
``Among his peers, he is central casting's grandfather figure,'' Wice said. ``But to the everyday man on the street, he's a freaking weasel who essentially used Enron as an ATM.''
Skilling testified for eight days ending April 20. His cross-examination by U.S. prosecutor Sean Berkowitz was often combative. He asserted that Berkowitz didn't grasp how Enron worked and that a market panic, not fraud or business failures, doomed Enron.
Berkowitz leads the Justice Department's Enron Task Force, which has secured guilty pleas from 16 company executives. The government alleges that Lay and Skilling used off-the-books entitles created by Fastow and known under such names as Raptors or LJM to hide Enron losses from auditors and investors.
The case is U.S. v. Skilling, 04-cr-25, U.S. District Court, Southern District of Texas (Houston).
To contact the reporters on this story:
Thom Weidlich in Houston at tweidlich@bloomberg.net
Laurel Brubaker Calkins in Houston at (1) laurel@calkins.us.com.
Last Updated: April 24, 2006 12:22 EDT |
