Lay's son sold stock short before Enron's fall

HOUSTON — A federal prosecutor used evidence that the son of Enron founder Kenneth Lay bet the company's stock price would fall to poke holes in Lay's contention that short-sellers — not fraud — helped push Enron into bankruptcy protection in December 2001.

In his second day of cross-examination, Lay maintained his composure after furiously responding to questions and stabbing his finger at Assistant U.S. Attorney John Hueston a day earlier.

Hueston attempted Thursday to rattle Lay by throwing back at him Lay's arguments that Enron was the victim of skeptical news reports, disclosures of wrongdoing by former finance chief Andrew Fastow, and short-sellers, who Lay said plotted Enron's demise in Florida in early 2001.

Short-sellers bet that a stock price will fall, borrowing shares to sell at one price, hoping they will be able to buy the stock later at a lower price, profiting from the difference.

Mark Lay, a former Enron employee, executed four short sales of Enron stock in March 2001, Hueston said.

"Was your son in Florida, sir?" the prosecutor asked.

"I guess I should ask him now," Lay replied wryly as several jurors smiled.

Lay, 64, faces six counts of fraud and conspiracy based on optimistic public statements he made after returning to Enron's helm in August 2001 following the abrupt resignation of his protégé and fellow defendant Jeffrey Skilling.

Lay answered questions firmly, sometimes talking over Hueston and suggesting the prosecutor didn't understand business issues.

Fires back

During a discussion of an arcane accounting issue, Lay retorted, "I think the investors would totally understand it, Mr. Hueston. Maybe in fact, you don't."

Later, Lay told the prosecutor that an exchange about another accounting charge was "a real waste of the jury's time."

Lay mostly held firm in his defense that he relied on countless other people to make business decisions when he returned as CEO. Prosecutors argue he was far more involved in the details of Enron's operations then he would care to admit, bringing as evidence budget documents, corporate board presentations and Lay's handwritten notes

"I'm not an accountant; I'm not a lawyer," Lay said. "There are a lot of things I'm not."

He also disputed the accounts of several former deputies who testified earlier in the 13-week trial, saying that some meetings simply never took place and others were a dim memory four years later.

Lay repeatedly contradicted government witness David Delainey, who testified that Enron's highly touted retail business was a disaster akin to "retooling a plane in flight."

"That's kind of what business is all about, other things in life, too," said Lay, who argues that he is an optimistic person.

"We're always retooling. You've got to make adjustments as you go along."

The prosecutor spent much of the day walking the jury through Lay's sales of more than $70 million worth of Enron stock to the company in its final months.

Hueston said Lay failed to disclose those sales to employees and investors, who believed based on information available in late 2001 that Lay had increased his Enron holdings in that period.

$100 million debt

Lay told jurors he had amassed $100 million in personal debts by 2001. He said he broke no laws with his stock sales.

"Mr. Hueston, despite your efforts here, I was fully complying with all the laws and regulations," Lay protested. "I know you're trying to portray a different story. I was doing exactly what I was told I needed to do."

Hueston told the judge after the court session ended Thursday that he hoped to finish questioning Lay early next week.

U.S. District Judge Sim Lake, who has zealously guarded the jury's time, signaled that his patience for additional questions by Lay's lawyers could be thin, given Lay's self-defense mechanisms.

"Mr. Lay has pretty well covered a lot of what you would on redirect," Lake told the defense team, as spectators laughed.