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Enron founder still under scrutiny

By Carrie Johnson
The Washington Post

	RON EDMONDS / AP Former Enron CEO Kenneth Lay exercised his constitutional rights and refused to testify before a Senate hearing last February.
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Former chairman Kenneth Lay is one of the few who occupied the 50th-floor executive suite in Enron's gleaming Houston office tower who has not been charged with a crime. But sources close to the investigation said yesterday that Lay remains under scrutiny for making optimistic public remarks about the energy company's health at the same time it was slipping into financial ruin.

Lay told employees in a September 2001 e-mail chat, for instance, that Enron's stock was "an incredible bargain" and a "great opportunity." Two days later, the company shut down an investment that soon would cost it $544 million in lost profits. In late October, Lay was still selling Enron stock himself and making frantic — and unheeded — calls to high Bush administration officials about the company's financial perils. Lay had been one of the largest fund-raisers to George W. Bush's campaigns.

The company filed for bankruptcy protection in early December, costing shareholders billions of dollars. The value of Enron's two employee stock plans fell from $2.1 billion to about $10 million in a year, prompting the Labor Department to sue Lay and other former executives for allegedly failing to protect their employees' interests.

For more than two years, prosecutors at the Enron Task Force have been reviewing Lay's stock trades and personal finances, calling as witnesses before a Houston grand jury Lay's bookkeeper, his children and other insiders. His defense lawyers contend that Lay, who founded Enron and became its chief promoter, sold company shares only to make good on personal loans he took out in support of volatile technology investments. He held on to millions of shares of Enron stock even as their price sank to pennies, lawyer Michael Ramsey has argued.

Deputy Attorney General James Comey declined to discuss the ongoing investigation of Lay at a Washington press conference yesterday. But Comey stressed that to bring a criminal case, prosecutors need to prove not only that corporate activities were improper but also that executives knew they were wrong.

"What I can say to folks out there is, you wouldn't want to live in a country where I or the FBI could go out and lock somebody up because a company failed and we had a bad feeling about them," Comey said. "Our business is facts."

Lay, 61, has strongly denied wrongdoing, and declined comment yesterday through a spokeswoman.

Bankruptcy examiner R. Neal Batson concluded in a November report that there were no "smoking guns" to tie Lay to alleged wrongdoing at Enron. Batson did find, however, that Lay ignored a series of red flags about looming trouble and suggested the company might have a basis to sue him to recover more than $90 million in proceeds from stock sales.

In recent weeks, federal investigators have expressed interest in Lay's activities after Aug. 14, 2001, when chief executive Jeffrey Skilling resigned and Lay reassumed day-to-day leadership of Enron.

The day after Skilling departed, Lay received an anonymous letter from an employee predicting the company would implode in a massive accounting scandal. That employee, Sherron Watkins, eventually came forward to meet with Lay. He directed the law firm Vinson & Elkins to look into her claims, which they judged to be without merit.
 
Lawmakers at the Senate Governmental Affairs Committee's Permanent Subcommittee on Investigations called the probe a "whitewash" because the firm depended upon Enron for millions of dollars a year in professional fees — and because in some cases, Vinson was reviewing its own work on corporate deals.

It is unclear what former Enron chief financial officer Andrew Fastow, who pleaded guilty to conspiracy last month, has told investigators about Lay's knowledge of secretive business partnerships Enron allegedly used to hide debt and improperly boost profits.

Lay's lawyers have moved aggressively to rebut allegations against him. Last month, after the Fastow guilty plea, Lay's defense lawyer called a news conference to address Lay's feelings of "betrayal" by the former whiz kid.

But at least some Houston residents say they feel betrayed by Lay himself.

"Everybody's been waiting for two shoes to drop: Mr. Skilling and Mr. Lay," said Philip Hilder, a Houston lawyer who represents Watkins and several other witnesses in the Enron case. "If Mr. Lay isn't charged, there are going to be a lot of people wondering why not."

Added Diana Pierce, a former worker in Enron's technology unit: "If (Ken Lay) knew all this was going on, it'll break my heart."

Special correspondent Roy R. Reynolds contributed to this report from Houston.

Copyright © 2004 The Seattle Times Company