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Kenneth Lay’s Indictmnet

Former Enron head Kenneth Lay surrendered to the FBI Thursday and pleaded not guilty to 11 federal criminal counts stemming from the 2001 collapse of the once giant energy trading company.

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  • JIM LEHRER:

    The case against the former top man at Enron. Kwame Holman begins.

  • KWAME HOLMAN:

    After surrendering to FBI Officials in Houston early this morning, former Enron chairman and CEO Kenneth Lay was led away to federal court in handcuffs.

  • REPORTER:

    Mr. Lay, do you have anything to say, sir?

  • KWAME HOLMAN:

    The Justice Department's 11-count indictment of Lay was unsealed today. Among other things, it charges him with conspiracy, securities fraud, and making false statements to banks that contributed to the giant energy company's collapse into bankruptcy in late 2001. Outside the courthouse today, Justice Department officials charged Lay knew of wrongdoing that occurred inside Enron.

  • ANDREW WEISSMAN:

    Rather than come clean and tell the unvarnished truth about Enron, Lay chose to conceal and distort and mislead at the expense of Enron's shareholders and employees, people to whom he owed a duty of complete candor. Mr. Lay did not want and did not allow the public to learn what he already knew: That Enron, absent the manipulative schemes, was in dire straits. Criminal cases in America are not brought solely to send messages. They are brought to bring individuals to account for their criminal acts.

    There are, however, two undeniable messages from today's charges: First, to corporate America: Your constituents are owed your complete candor, the unvarnished truth. Second, if you violate that trust, you will be called to account no matter how powerful, no matter how wealthy. No one is above the law.

  • SPOKESMAN:

    We're going to have a short press conference at the Doubletree Hotel.

  • KWAME HOLMAN:

    The investigation that preceded today's indictment of the 62-year-old Lay began nearly three years ago. After entering a plea of not guilty, Lay spoke to reporters at a hotel near the Houston courthouse.

  • KENNETH LAY:

    An indictment came down that should not have occurred. As CEO of the company, I accept responsibility for Enron's collapse, as I've said before. However, that does not mean I knew everything that happened at Enron, and I firmly reject any notion that I engaged in any wrongful or criminal activity. Enron's filing for bankruptcy protection on Dec. 2, 2001 was clearly one of the saddest, if not the saddest days of my life, both personally and professionally, and caused enormous and irreversible hardship to thousands of good Enron employees and retirees, as well as many others.

  • KWAME HOLMAN:

    The federal investigation also has ensnared other former top company officials. Jeffrey Skilling was second in charge at Enron, and served as CEO between February and August 2001. Last February, Skilling pleaded not guilty to charges of criminal fraud. Andrew Fastow was Enron's chief financial officer. He's told prosecutors he masterminded financial schemes to hide Enron's debt and took millions in profits for himself. Fastow is cooperating with federal investigators. Today, Kenneth Lay blamed Fastow and others for the collapse of Enron.

  • KENNETH LAY:

    None of us detected what was going on. If you've got a chief financial officer who has reason to be trying to hide things, certainly not to disclose things to the board or me, it is very difficult to pick that up.

  • KWAME HOLMAN:

    From a poor rural background in Missouri, Kenneth Lay went on to found a small natural gas supply company called Enron in 1985. The company would grow to become a symbol of the economic boom of the 1990s. Enron evolved from energy supplier to the world's largest trading company of natural gas and electricity, domestically and overseas. Enron's fall began in earnest in 2001 after news of its accounting problems became public.

    On Wall Street, the company's stock plummeted, costing investors billions of dollars. Tens of thousands of workers lost their jobs, and watched their pensions, which relied on Enron stock, disappear. The U.S. Congress investigated Enron vigorously and approved new legislation covering pension plans and corporate accounting standards. Today, Kenneth Lay said he hoped for a speedy trial that would begin by September.

  • JIM LEHRER:

    More on the Lay case now. New York Times correspondent Kurt Eichenwald has been covering the Enron story from the beginning and he was in the Houston courtroom today. John Coffee is a professor specializing in corporate law and white-collar crime at Columbia University.

    Kurt Eichenwald, first in general terms, what is it that government says that Kenneth Lay actually did?

  • KURT EICHENWALD:

    Well, it's interesting. I mean, actually the most interesting point what is they don't say. They don't say he knew about Fastow's partnership schemes, they don't say on a criminal side that he engaged in insider trading. What they say is that when he rejoined the company as chief executive in August of 2001, just a few months before it went bankrupt, that there were a series of things he found out about Enron's circumstances that should have led him to disclose more about the troubles that were facing the company and a number of very technical elements.

    There are also allegations that when he told employees that he was buying shares, while he was buying shares, he was also selling shares to meet margin calls and that when you aggregate those out, he was in that seller so the government is saying that is a lie. There's also some allegations of bank fraud, that he borrowed money for purposes that he told the bank he wasn't going to use the money for.

  • JIM LEHRER:

    So John Coffee, to follow up on that, what they've accused him of — a very narrow and a very brief period of time, correct?

  • JOHN COFFEE:

    Yes. I mean this is very different than what I'll call the folklore of Enron. Mr. Skilling and Mr. Causey are charged with a broad sprawling conspiracy, cooking the books from '99 on. Instead Mr. Lay is charged with miss conduct and overt acts only over about five or six weeks from the end of September 2001 until when the company totally goes belly up in November.

  • JIM LEHRER:

    Staying with you, Professor Coffee, what about, it's clear at least in listening to the news conference today that Kenneth Lay's defense is going to be that Andrew Fastow did it all, I didn't have anything to do with it. Is that clearly what he's saying?

  • JOHN COFFEE:

    I think that basically he's going to say the witness against me is the real villain, and there's really no question that Mr. Fastow bears the highest level of culpability. He was the one person who was looting the company. Mr. Fastow did everything you can do wrong, Mr. Lay may have made a number of false statements to analysts and to employees, but he wasn't in the same way looting the company. And we're going to have a very bitter confrontation between those two.

  • JIM LEHRER:

    Kurt. Yeah, go ahead.

  • KURT EICHENWALD:

    Actually, I think there's a very high probability that Andy Fastow is not going to testify against Ken Lay.

  • JIM LEHRER:

    Wow! Why not?

  • KURT EICHENWALD:

    Well, if you look at the allegations that lay is actually confronting, the first one occurs on September 26 of 2001. Andy Fastow was out of company on October 24. The main allegations against him, the primary allegations relate to what's called accounting for acquisition goodwill. And the witnesses on that are going to be the accountants, Andy Fastow didn't know accounting. He may have a tangential role in that it had to do with whether or not Enron was going to dispose of a particular asset and he might have been involved in the potential sale of that asset. But I think in truth when we get to the Lay portion of this case, we're going to have a lot of witnesses on the stand who, officiandos of the case know their names, but most in the public doesn't.

  • JIM LEHRER:

    Then why, Kurt, did Lay make a big, such a big to do today over the fact that it's Fastow who is the villain here, not me, if he's not even charged with the same crimes?

  • KURT EICHENWALD:

    Well, what Lay was talking about today wasn't, when he was talking about that portion, wasn't here's who's responsible for the crime. He was making a very specific delineation. He said here is who's responsible for the collapse of Enron. I'm responsible because I was chief executive, but here's the guy whose actions destroyed it.

    Now, as for me, and these allegations about what happened in this four-month period, I did not commit a crime. So he's splitting, and in truth, if you took away every single one of Ken Lay's crimes, if Ken Lay, you know, left the country in July of 2001, never to return, Enron would have gone under. It wouldn't have changed.

  • JIM LEHRER:

    I see.

  • KURT EICHENWALD:

    So none of the things he's charged with, you know, drove Enron under.

  • JIM LEHRER:

    Okay. John Coffee, to the things then that he is actually charged with, how do you see his defense going? First of all let's start with the prosecution. How is the prosecution most likely going to try to make that case against him?

  • JOHN COFFEE:

    Well, they're going to have videotapes of various statements or e-mails that Mr. Lay sent to employees or to analysts or to credit rating agencies. The problem here is that a lot of these statements are basically statements of opinion. For example, one of the most celebrated statements was a statement that he considered the stock of Enron to be an incredible bargain.

    Now that's a statement of opinion, and the law of fraud requires, in the case of statements of opinion, that you prove not only objective falsity, but a subjective disbelief by the speaker, and Mr. Lay is going to have a defense. He's at least going to argue that his own conduct corroborates his belief because he was buying just days before he made these statements that Enron was a bargain. It's difficult to prove that that's fraud.

  • JIM LEHRER:

    And that statement is one of the allegations that the federal government alleges, or the federal government alleges that's one of the lies he told, right?

  • JOHN COFFEE:

    Many of these lies are statements of opinion. Others are statements of fact. But some of the statements of fact get into the arcane world of accounting. For example, one of the false statements he's alleged to have made is that he told analysts that a certain loss was nonrecurring, whereas the government says he knew it was a recurring loss. That doesn't sound like a smoking gun to most people, in fact it takes a lot of accounting knowledge to really understand the difference between nonrecurring losses and recurring losses. It doesn't come across as a blatant bald -faced lie.

  • JIM LEHRER:

    Kurt. Yeah, go ahead.

  • KURT EICHENWALD:

    Actually, the most interesting thing here to me, I kept assuming that given what I was hearing this case was going to be, that we were also going to be hearing a guilty plea today by Richard Causey, the chief accounting officer: The reason being, unless the government can prove that Rick Causey told Ken Lay, our accounting for this is wrong, and Ken Lay replied, do it anyway, Lay has a very strong defense if Causey gets up out of the stand and says I think the accounting is right, because he gets up on the stand and says, well, that's what he told me. You know, Lay is not an accountant, Causey is. So I was surprised that Causey is still part of this case.

  • JIM LEHRER:

    Curt, give us your feeling, your impressions of Ken Lay's demeanor today, in the courtroom and then later at the news conference, and you did a big interview with him – what is that — ten days ago or so, the first big one he's done.

  • KURT EICHENWALD:

    Seems like forever.

  • JIM LEHRER:

    Seems like forever. But give us a feel for this man, how he's handling this.

  • KURT EICHENWALD:

    It was interesting, when he walked — he's not particularly a tall man, but when he walked into the courtroom, he really seemed almost out of place. He seemed smaller, like he didn't know where to go, and he, you know, sat in the back of the room, and then was waved up and walked up and was very clearly uncomfortable, which I think is understandable. You know, as he looked around and saw that, you know, friends and family were there, he would recognize them. But I also think on some level he was embarrassed.

    The press conference was a different person. The press conference was a man who seemed like he had had a lot of things he had wanted to say for a long time and who got up and came out swinging. He's a fellow who — what surprised me was that there was not a single question he wasn't willing to take. I asked a question, very specifically, just to sort of see what would happen, dealing with some very fact intensive issues pertaining to one of the charges, and what his thoughts were at the time and who told him what. And I fully anticipated he was going to turn that over to his lawyer, and instead he just came back with an answer. So I think he is sending a message to Houston, he is sending a message to the prosecutors, that , you know, he's not planning to roll over, he's going to fight this.

  • JIM LEHRER:

    John Coffee, how unusual is it for a defendant in this kind of case to hold a news conference and do just exactly what Kurt was talking about?

  • JOHN COFFEE:

    This is extremely unorthodox. Every other defendant in all these corporate impropriety cases has kept absolutely silent at the express orders of his lawyer and if anyone talked, it was the lawyer. That's because everything Mr. Lay says is admissible against him as an admission in court, and it also takes away the advantage of surprise. Now the prosecution knows what his spin is going to be on various facts, where he could have laid back, kept quiet and kept them in the dark.

    But I think Mr. Lay and his attorneys have decided they've got to win this case in the court of public opinion, and create some sympathy for him and create the image that he's the scapegoat and Fastow is the villain, because he's going to face a jury in Houston that is very familiar with the facts of Enron and knows people who lost their life savings or their job, and his problem is going to be, this is really the devil and Daniel Webster's kind of jury, and he's got to turn them around by communicating his story, I think, early and often.

  • JIM LEHRER:

    Kurt, what do you think is behind the decision of Lay and his lawyers to push for a quick trial, they want a trial in September, I mean, what's that all about?

  • KURT EICHENWALD:

    Smartest thing they could do. If I was the prosecutor, I would have joined these cases, I would have brought Lay on, with Skilling and Causey, because then that allows you to lay out the whole story from start to finish, one jury gets to hear it. Lay does not want to be part of that case, he doesn't want the months and years ahead of him to be part of it. So primarily the only way, one way he can separate himself is by saying I want to go to trial right now; that gives him a real reason to sever these cases.

    Secondly, I think that they believe the government has bitten off more than they can chew; that they have brought a case that has some weaknesses within it, and that they're ready to go. And so I think that — you know, I've seen cases in the past where the government brings an indictment and rails a lot about how awful the defendants are and the defendants say let's go to trial — and the government turns around and drops the case, so that – now that is not going to happen here. But I think that Lay is really trying for the strategic advantage, both to get himself separated from Skilling and Causey and to go to trial before the government's fully ready.

  • JIM LEHRER:

    Then it's safe to say the dance has just begun?

  • KURT EICHENWALD:

    Absolutely.

  • JIM LEHRER:

    Okay, Kurt Eichenwald, John Coffee, thank you both very much.

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