TOPICS > Economy

Former Enron CEO Battles Lawyers During Final Testimony

May 2, 2006 at 6:15 PM EDT

MARGARET WARNER: Enron founder Kenneth Lay’s testimony has provided some of the most riveting moments of the 14-week-long trial for him and co-defendant Jeffrey Skilling. Lay faces six counts of fraud and conspiracy. The government says he lied to investors about Enron’s financial state before the energy giant collapsed in December 2001.

Lay was Enron’s CEO for 16 years, interrupted by an eight-month hiatus when Skilling took over in early 2001. But Lay was back in the CEO’s seat when the company imploded late that year.

Here to tell us about Lay’s six days on the stand is Frank Ahrens of the Washington Post who’s been at the courthouse in Houston covering the trial.

Contentious days in court

Well, Frank, is it fair to say this has been a pretty contentious six days?

FRANK AHRENS, The Washington Post: I think, to use a Texas phrase, Ken Lay has been right ornery on his time on the stand, even under the questioning of his own lawyer. He grumbled at his own lawyer, his defense counsel, and then when John Hueston, the federal prosecutor, took over, it turned into a real fight. And they were scrapping at each other from the beginning right to the very end today.

MARGARET WARNER: Now, it was Lay and his lawyers who decided for him to testify. What was the crux of his defense? In other words, what were they trying to demonstrate under direct examination?

FRANK AHRENS: The point that they were saying is that what we did, it's about business practices. The things we did at Enron were not illegal.

The problem with this defense that a number of analysts and lawyers have said is: You mere mortals can't understand what happened at Enron. And prosecutor John Hueston has spent two years -- he was the man who secured the indictment against Ken Lay -- and probably thinks that he knows Ken Lay as well as anyone, and maybe Enron as well, and he's pretty sure he knows what happened at Enron.

The prosecution questions Lay

MARGARET WARNER: But so when the prosecutors got a hold of him under cross-examination, how did they try to undercut Lay's basic defense, namely that he was just trying to save this company?

FRANK AHRENS: It's very interesting to watch how the prosecutors have worked. Both Skilling and Lay said in August 2001, when Skilling left and Lay took over, the company was strong and in good health. Under vigorous cross-examination from the prosecution, they have backed off that. Lay backed off that a bit.

And by today, when he was being questioned again by his lawyer, his defense lawyer, Ken Lay's defense lawyer said: OK, now when you came back into Enron in August to revive the company, and John Hueston, the prosecutor, jumped on that right away, what do you mean revived the company? Didn't you say the company was in good health, which put Lay in a bit of a stammer.

MARGARET WARNER: Now, there was also a great back-and-forth, I gather, maybe over a couple of days over when Ken Lay sold lots of large blocks of Enron stock. Tell us about that. What was the point the prosecution was trying to prove? And what was Lay's sort of defense or explanation?

FRANK AHRENS: Over a few months in 2001, especially as the heat started getting turned up on Enron, Ken Lay sold $70 million worth of his personal Enron stock back to Enron. Now, he said the reason he sold it to Enron was that it was easier; it was more convenient for him.

Well, the prosecution has said: Now, Mr. Lay, if you had sold it through your broker, your sales would have been reported right away, and investors would have known that you were dumping massive amounts of stock.

If he sold it back to the company, as he did, that stock sale wouldn't have been reported until the end of the year, it turned out well past Enron's bankruptcy. So, at the time, when Lay was selling all of this stock, he was buying just a little, which was instantly reported.

So if you are a reasonable Enron investor, and you're a little worried about how your company is doing, and you look at your CEO, Ken Lay, and you look at all the proper paperwork, and you say, "Well, this guy is a net buyer of stock," that wasn't true at all. He was a net seller of stock by quite a lot.

And the prosecution says: You did this to hide your stock sales from investors, to hide the poor health of the company.

MARGARET WARNER: And what was Lay's response to that? What was his explanation?

FRANK AHRENS: Lay kept going back to: I found it was more convenient. I worked right through the company. It was easier for me to do it. The paperwork was easier.

What was happening here, at the beginning of 2001, Lay had a personal debt -- personal debt -- of $110 million, OK? This is a guy who had accumulated $223 million in compensation from 1999 to 2001. He had $110 million in personal debt which he had used to buy different houses. He had seven houses at one point.

And there was a point in the cross-examination, right before lunch on Thursday, when prosecutor John Hueston was just laying out these lavish expenses that Lay and his wife, Linda, had incurred: $200,000 for a yacht for a birthday party; $4,700 for two nights on the Riviera.

And Lay, who had been pugnacious up to that point, just got very quiet and kind of answered, yes and no, and almost even hunkered down in his jury box. If it had been a boxing match, the referee would have called the fight.

Questioning Lay's Lifestyle

MARGARET WARNER: Now, all these tales of the lavish lifestyle make for great tabloid fare, but, again, what was the prosecution trying to show? How does that go to the charges against Lay?

FRANK AHRENS: What the prosecution is trying to show is: Enron was getting worse and worse. You said that you wanted to hold onto your Enron stock because you had faith in the company, but yet you were selling all these amounts of Enron stock, plus you were living this extraordinary lifestyle.

You weren't trying to cut costs. You were the guy who cut the Enron Christmas party. You were the guy who had to do layoffs because the company teetered on bankruptcy in November. And, yet, you were spending all of this on your own.

It goes right to the heart of what the prosecution is trying to portray Ken Lay as to the jury, as kind of a heartless robber-baron, sort of an imperial man of Enron who, you know, wanted to continue living the lifestyle while those below him suffered.

And, in fact, his defense lawyer, came back. The very last question he asked Ken Lay today was: Did you love Enron? Lay, of course, said he loved Enron and all of the employees. That's a direct answer, trying to answer what the prosecution had been raising.

MARGARET WARNER: And from reading some of the exchanges in the paper, it appears as if the prosecutor often would ask a question in the form of a question, but it was really an accusation, and that Lay would answer sometimes by attacking the prosecutor. Is that right? Give us an example of that.

FRANK AHRENS: Yes, the prosecutor would say, "Mr. Lay, you did x. Isn't that true?" "Well, no, of course that's not true."

And the prosecutor would say -- and then Lay would like to elaborate. "Mr. Lay, let me have you have a yes or no answer. If you feel you have to elaborate, you can do that under your defense lawyer on redirect."

These two, Hueston and Lay, they've been at each other for a good two years. And among the first things that Kenneth Lay said to John Hueston when he started the cross-examination, he accused him -- unprompted -- he accused John Hueston and the prosecution of trying to block certain financial things that Lay had been doing to try to right his ship. They came out snarling at each other.

The trial timeline

MARGARET WARNER: All right. And briefly, Frank, how soon will the trial be over?

FRANK AHRENS: Well, it will probably be -- there will probably be testimony from the expert and character witnesses today. For instance, Houston Astros' owner Drayton McLane came in today. Probably a couple more weeks of that.

It could go to the jury sometime week after next, about that time, but it's a guess. It's a good guess, but it's a guess.

MARGARET WARNER: All right. Frank Ahrens of the Washington Post, thanks so much.

FRANK AHRENS: Thank you.