June 27, 2004
Kenny Boy speaks

Kenny Boy Lay rues his Bush family friendship, blames Fast Andy Fastow, and asks us to pity him for being down to his last million in this interview.

There was a time when Kenneth L. Lay's close relationship with President Bush brought him power and influence in Washington that was virtually unparalleled among his colleagues in corporate America.

Now, Lay, the former chairman and chief executive of Enron, fears those ties may only serve to bring him criminal charges.

"If anything, being friends with the Bush family, including the president, has made my situation more difficult," Lay said in a recent interview, "because it's probably a tougher decision not to indict me than to indict me."

For more than two years, he has been the nation's silent pariah.

Now, on the eve of what may be the government's final decision on whether to charge him with a crime, Lay is talking for the first time about the company's collapse in 2001 and the scandal that enveloped it. In more than six hours of interviews with The New York Times, Lay remained steadfast in his expressions of innocence, even as he acknowledged, as head of the company, responsibility for the debacle rests rightfully with him.

"I take full responsibility for what happened at Enron," said Lay, 62. "But saying that, I know in my mind that I did nothing criminal."


The years since the Enron collapse have transformed Lay. The changes in his financial status are stunning. At the beginning of 2001, Lay said, he had a net worth in excess of $400 million -- almost all of it in Enron stock. Today, his worth is below $20 million, and his total available cash not earmarked for legal fees or repayment of debt is less than $1 million.

But the changes amount to more than just money. A man once celebrated in business and political circles, today he is widely vilified as bearing significant responsibility for Enron's downfall, a debacle that cost thousands of employees their jobs, millions of investors their savings, and, for a time, forced a nation to question the capital markets system. He is often portrayed as a man who bailed out of his company as it was sinking, selling millions of shares even while telling investors and employees that he believed in the company's future.

It is a portrait, he insists, that disregards the realities of Enron's last months, a time in which he describes himself as first working hard to improve the company, then struggling desperately to keep it afloat.


In the end, Lay said, the Enron story is one of corrupt executives in a finance organization led by Fastow who took advantage of the company for their own personal benefit and ultimately destroyed it. Fastow has pleaded guilty to fraud and is cooperating with the government.

"At our core, regrettably, we had a chief financial officer and a few other people who in fact mismanaged the company's balance sheet and finances and enriched themselves in a way that once we got into a stressful environment in the marketplace, the company collapsed," he said. "But by the same token, most and I mean 98 percent of the people who worked at Enron were good, honest, hardworking individuals. They were not crooks."

Still, Lay said he clung to a belief that the outcomes of certain corporate decisions that ultimately proved devastating to the company could not have been anticipated. The use of such partnerships was widespread throughout the business world, as corporations attempted to use a technique authorized under the accounting rules to pretty up their reported financial picture. But Enron took those efforts much further, adopting policies that were unheard of, such as allowing Fastow to operate an off-books investment fund that did business with the company and provided financing for some of the partnerships.

Lay labels criticisms of that set-up as 20-20 hindsight, because the world now knows that Fastow used the vehicles to manipulate Enron's earnings and loot the company -- all without his knowledge, Lay said.

"At the time it seemed the appropriate thing to do," he said. "And I had no reason to doubt or distrust Fastow."

But legal experts dismiss the entire venture as foolhardy from inception. "It's just not common-sense thinking," said John J. Fahy, a former federal prosecutor now with Fahy Choi in Rutherford, N. J. "Your CFO cannot be put in a position where he is in conflict with the company. He is simply too important. The idea is just crazy."

While he has been subjected in recent years to withering personal criticism on Capitol Hill, by the media, on late night talk shows and across the Internet, Lay said that in his hometown many longtime friends and associates remained supportive, and he continued to serve on multiple charitable boards in town.


Lay was asked whether he believed he owed employees a fuller response, and an explanation that he was selling shares, forced or not.

"Let me put it this way, it just didn't cross my mind," he said. "I was doing my best to hang on to as much as I could because I was convinced that the fundamentals of the company were so strong."

Despite the rumblings that criminal charges against him could well be imminent, Lay says he is sanguine.

"I know in my mind I did nothing wrong and nothing criminal," he said. "But I'd say if it does happen, it's a great miscarriage of justice."

But, if faced with indictment, would Lay consider pleading guilty?

"Absolutely not."

Yeah, whatever. It's a long and very interesting article, though oddly only a much-condensed AP wire feed of the story, which does mention that Lay has not granted any interview requests to the Chron, appears in the print edition. Tom Kirkendall, who's also been following all things Enron closely, also links to it.

Meanwhile, in the business section, read about Eric Christensen, the man who uncovered Grandma Millie.

The main impetus was his customers, the people of Snohomish County, Wash., where Christensen is assistant general counsel of the Snohomish Public Utility District, which provides gas and electricity for 290,000 households in Snohomish and Camano Island.

During the energy crisis, the county bought power from Enron at sky-high prices because there were no alternatives.

A week before Enron spectacularly flamed out in the largest corporate bankruptcy for the time in December 2001, Snohomish canceled the contracts, exercising a provision that let it off the hook if Enron's financial situation became unstable. Eight months later, Enron sued the county for a termination fee of $122 million, which would cost every Snohomish ratepayer $420.

That kind of money would be a big hit to many in a county where 10 percent of the population is classified as having "poverty wages," according to Market Facts 2004, a publication profiling the local economy.


So when Enron -- by then bankrupt -- slapped Snohomish with the $122 million lawsuit in the summer of 2002, the utility district wasn't going to take it lying down.

Enron and other energy companies routinely taped traders' discussions to keep a record of the fast-paced wheeling and dealing in case of disputes. Given what Snohomish and others suspected about Enron -- that it had engaged in fraud and illegal market manipulation -- Christensen and his colleagues had a hunch that there might be evidence on those tapes.

The utility sought and got a subpoena for tapes of three key months in 2000 and 2001 from Enron's Western trading desk in Portland, Ore. Timothy Belden, the head of that office, has pleaded guilty to wire fraud in connection with manipulating the electricity market.

Christensen is particularly indignant that the Federal Energy Regulatory Commission, the country's main watchdog over the energy markets, has appeared to him as toothless in going after Enron and even tried to block Snohomish from getting the tapes.

FERC's lack of support may have ultimately helped Snohomish, though.

"They forced us to prove that we were being ripped off," Christensen said.

"I think that's looking at the glass as being half empty rather than half full," FERC spokesman Bryan Lee said.

Although the agency initially opposed the subpoena because the tapes were part of an ongoing criminal investigation, it later helped Snohomish get the tapes, according to Lee.

Thanks from all of us, Eric Christensen.

Posted by Charles Kuffner on June 27, 2004 to Enronarama | TrackBack