December 15, 2005
Kenny Boy previews his defense

Kenny Boy Lay gives full embrace to the Idiot Defense in a speech to the Houston Forum.

Just a month before his Jan. 17 federal trial on seven conspiracy and fraud charges, the former Enron chairman drew polite applause with his luncheon address titled "Guilty, until proven innocent," in part a call to arms to Enron employees to defend the honor of the company and Lay himself.

Lay quoted Winston Churchill, saying, "Truth is the great rock," and in his case, prosecutors have submerged it in a "wave of terror."

Lay promised he'll testify and asked other Enron employees to join him in creating a "wave of truth."

"Enron employees really have only two choices. Either we stand up now - and prove that Enron was a real company, a substantial company, an honest company, a company that had a vision and values ... or we will leave this horrific legacy shaped by others," he said.


Lay's talk to the Galleria-area crowd foreshadowed the defense he and his co-defendants will put forth, attacking both Andrew Fastow, Enron's former chief financial officer, and the Enron Task Force.

The former chairman of Enron told the sold-out crowd of about 500 at the Houston Forum that Enron was a great company and would still be great if not for the illegal conduct of a few - namely Fastow and his protege, Michael Kopper, who Lay said committed "despicable and criminal deeds."

"We did trust Andy Fastow, and sadly, tragically, that trust turned out to be fatally misplaced," he said. Lay said it was the misdeeds of Fastow and cohorts, hidden from Lay, that led to the company's 2001 bankruptcy and the dissolved dreams of thousands of employees.

Lay said most of what has been reported about Enron has been false or distorted, and attributed its collapse to the financial community and Enron's trading partners losing confidence in the company. He clearly signaled they will use the "run on the bank" argument Skilling made to Congress.

There's more, including attacks against the prosecution, all of which you can read here. I call this the Idiot Defense because his basic thesis is going to be that he had No Idea Whatsoever that Fastow and Kopper were stealing everyone blind. You could've paid me an awful lot less to be that incompetent as a CEO.

In both blog and column, the Chron's Loren Steffy is unimpressed. Tom Kirkendall, who's been a consistent critic of the Enron Task Force, thinks it's not so simple:

Mr. Steffy's skeptical reaction to Mr. Lay's proclamation of innocence is quite common, but misses the difference between being held responsible in civil context as opposed to a criminal one. Few people -- probably not even Mr. Lay -- would contend that Mr. Lay should not share at least some responsibilty in a civil lawsuit for Enron's demise. However, absent the state making a clear presentation of an alleged criminal act, the responsibility for Enron's descent into insolvency should be sorted out among all responsible parties in a civil lawsuit, not a criminal case against a few of the more prominent responsible parties. In that regard, the Enron Task Force's indictment (download pdf here) and current statement of its criminal case against Mr. Lay and his co-defendants (download pdf here) reveals that the Task Force's presentation of criminal charges against Mr. Lay is anything but clear. Indeed, a lack of coherence in the presentation of criminal charges against Enron-related defendants has been a recurring problem for the Enron Task Force.

In theory, I think Tom is right, but in practice, I'm not at all convinced that the civil justice system will mete out sufficient retribution for those who caused so many people to lose so much. Has anyone sued the Enron Board of Directors, who (as The Smartest Guys In The Room made clear) knew about and approved of many of Fastow's shady deals? Even if all the right people get served, I'm not convinced they'll be made to pay. It's too easy to shelter assets from judgment - OJ Simpson still has a mansion in Florida, after all. I share some of Tom's concerns about prosecutorial overreach and criminalizing normal behaviors, but I'm left wondering what else there is to do.

Anyway. I'm more than a little fascinated by Lay's call to arms of ex-Enron employees. If the comments in Steffy's blog post are any indicator, that won't go over very well. It's an interesting move, and I suppose it won't cost Lay anything if it flops, but I still think he's a little deluded to make it.

Posted by Charles Kuffner on December 15, 2005 to Enronarama | TrackBack