Press sapped Enron, Lay asserts

HOUSTON (AP) — Enron Corp. founder Kenneth L. Lay blamed the press yesterday for undercutting his company’s strengths in the weeks before it crashed by highlighting problems that he said were already resolved.

Yet he said more problems, including the restatement of previously announced earnings that wiped out nearly $600 million in profit for the previous four years, further pushed Enron toward bankruptcy protection as investor confidence eroded in October and November 2001.

The restatement is unrelated to criminal counts against Mr. Lay, but he noted that it added to the firestorm that he said the press ignited.

“Obviously, that was a devastating blow to the financial markets and us,” an agitated and sometimes bristling Mr. Lay told jurors in his fraud and conspiracy trial.

The former chairman and chief executive appeared to be trying to control the examination by defense attorney George Secrest in his second day on the stand, saying, “I’m not sure where you’re going with that,” when Mr. Secrest asked him to differentiate strategic from non-strategic assets. Mr. Lay then affably explained that a strategic asset is considered to be strategic to a certain business.

Philip Hilder, a former federal prosecutor who represents several former Enron executives, said outside court that Mr. Lay and former Enron Chief Executive Officer Jeffrey Skilling “could not be more different in their demeanor” in court. Mr. Skilling, Mr. Lay’s co-defendant in the federal criminal trial, finished nearly eight days on the witness stand last week.

Mr. Hilder’s clients include Sherron Watkins, a former Enron executive who won fame for trying to warn Mr. Lay of the financial peril facing the company days after he stepped back into the CEO role, following Mr. Skilling’s abrupt resignation in August 2001.

Mr. Hilder said Mr. Lay appeared to be “taking control of the questioning and charting his own course” to “reinforce his version of reality,” while Mr. Skilling let his lead attorney, Daniel Petrocelli, guide his testimony.

The government says Mr. Lay and Mr. Skilling conspired with each other and their staff to hide accounting tricks and failing business ventures until the company collapsed into bankruptcy proceedings in December 2001.

Both defendants say there was no fraud at Enron other than that committed by former Chief Financial Officer Andrew Fastow and a few others, who skimmed millions of dollars from secret scams. Mr. Lay, who began testifying Monday, continued to insist yesterday that Enron cratered in a storm of bad press, a skittish post-September 11 market and Fastow’s greed.

Fastow told jurors during his testimony as a prosecution witness earlier in the three-month trial that he met with Mr. Lay the day after Mr. Skilling resigned and warned of billions of dollars in looming write-downs of overvalued assets. Mr. Lay, who has pegged Fastow as a traitor, a liar and a crook, flatly denied Fastow told him any such thing.

“I don’t recall him ever telling me the company was in dire straits,” Mr. Lay said, noting that he would remember such a warning.

A few days later, Mrs. Watkins met with Mr. Lay to alert him to four off-the-books financial structures ostensibly created in 2000 to lock in gains from assets and investments. Fastow and other prosecution witnesses said the structures, called Raptors, actually hid losses by warehousing poor assets and investments.

When Mrs. Watkins testified, she read part of her infamous memo leaked by Congress in early 2002 that warned, “I am incredibly nervous that we will implode in a wave of accounting scandals.”

Mr. Lay minimized her complaints, telling jurors that she had been concerned about the appearance of the Raptor deals and that she told him “no,” when he asked whether the structures were illegal.

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