by John M. Curtis
(310) 204-8700

Copyright April 26, 2006
All Rights Reserved.

cting clueless about Enron's collapse, former CEO Kenneth L. Lay pretended he's a victim of a Wall Street Journal witch-hunt, when the Dow Jones' business publication first exposed fraud at the nation's seventh ranking corporation in mid-October 2001. Like his co-defendant former Enron CEO Jeffrey K. Skilling, Lay insisted he was duped by the prosecution's star witness, former Enron Chief Financial Officer Andrew S. Fastow, whose off-the-books partnerships hid millions in debt from Wall Street and shareholders. Blaming Enron's collapse on a “classic run-on-the-bank,” Lay and Skilling showed more moves than synchronized swimmers, rolling out the “categorical denial” defense at their fraud and conspiracy trial. Lay smartly refused to talk to The Journal when the bombshell hit, realizing he'd be answering to a jury trying to save his hide.

      Telling jurors Enron's collapse was the most painful event in his life, Lay feigned sympathy for Enron's shareholders—and former employees—who watched their stock plummet from ninety-dollars to zero in no time. In the year before Enron declared Bankruptcy Dec. 2, 2001, 144 executives and senior managers liquidated $744 million in company stock, nearly 75% of the company's retirement fund, covering 24,000 employees. Lay cashed in $153.7 million in stock, exercised $34.3 million in stock options and received $81.5 million in loan advances, totally $269.5 million. During that same time Skilling dumped more that $200 million in company stock and options. Lay and Skilling accounted for 60% of Enron's total liquidation. Yet Lay screams his innocence, telling jurors that the Wall Street Journal and bad publicity caused Enron's collapse, not massive fraud.

      Watching Lay and Skilling reveals a carefully orchestrated strategy of categorical denial related to Enron's collapse. Both CEOs insist that their rogue accountant and outside auditor, former big-five accounting firm Arthur Andersen, conspired to defraud the public. Fastow has already testified that Lay and Skilling not only knew, ordered and approved Enron's shady accounting practices, they wanted and asked for more smoke-and-mirrors to keep the fraud going. Blaming Enron's collapse on the Wall Street Journal is like blaming ptomaine poisoning on extraterrestrials. Enron collapsed because the company was built on illusion, without a legitimate business model capable of generating real earnings and long-term profits. Like Skilling, Lay's only salvation is duping jurors into believing that highly sophisticated CEOs have no clue about business, accounting or what goes on.

      Jurors must ask themselves why, if Skilling and Lay's stories are true, the two CEOs and upper management liquidated their Enron holdings in the year before the company went under. Fastow told jurors that he informed Lay Aug. 20, 2001 of the “hole in earnings” likely to devastate the stock. Yet Lay told Business Week Sept. 26, 2001 that “the company is probably in the strongest and best shape that it has ever been in,” adding to the government's claim that he duped investors. Judging by Lay and Skilling's methodical liquidation , it's not credible that they believed the company was in sound financial health. Jurors didn't believe ImClone Systems CEO Sam Wacksal when he dumped his family's holdings after getting insider news from the Food and Drug Administration that his miracle drug Erbitux was rejected. Lay and Skilling have abysmal credibility problems.

      Telling jurors how much pain he feels doesn't jibe with Lay enriching himself at shareholders' expense. Blaming Enron's collapse on Sept. 11, the recession or any other extraneous event doesn't wash, when countless U.S. companies somehow survived the Sept. 11 and the 2001market crash without fraud investigations. Lay blamed Enron's woes on Fastow's accounting irregularities. Yet the record shows that not only did Lay encourage Fastow, he approved of the dubious off-balance-sheet partnerships that hid Enron's mounting liabilities. Lay's only chance of getting off the hook involves categorical denial and convincing jurors that he's a hapless victim of his rogue CFO, now the government's star witness. Common sense works against Lay and Skilling, who ask jurors to believe that CEOs operate in the dark, without any inside knowledge of the company's books.

      Lay and Skilling carefully coordinated their testimony, virtually telling the same story that they were clueless and duped by Enron's creative CFO. Enron's failure through Wall Street for a loop, demonstrating how it's possible for clever accountants, silver-tongued CEOs and slick public relations to scam the investment community. “I've been blessed throughout my life,” said Lay, telling jurors that his enviable life has turned into “the American nightmare.” Lay's greed finally caught up with him, cashing in nearly $300 million before Enron went under. No matter how folksy or genteel Lay's appearance, jurors have to weigh the cold facts against a farfetched sob story. Calling the government's case “ludicrous” invites jurors to question Lay's sincerity. There's nothing “ludicrous” about how Lay and Skilling scammed investors, looted Enron and left 24,000 employees in ruins.

About the Author

John M. Curtis writes politically neutral commentary analyzing spin in national and global news. He's editor of OnlineColumnist.com and author of Dodging The Bullet and Operation Charisma.

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