- The Washington Times - Thursday, April 27, 2006

HOUSTON (AP) — Federal prosecutors sought yesterday to torpedo Enron Corp. founder Kenneth L. Lay’s self-portrayal as a company champion, trying to show he used the ailing energy giant to bail himself out of personal financial woes in 2001.

Mr. Lay obtained more than $70 million in loans from Enron throughout 2001 and repaid most with company stock, even as he encouraged employees to buy more shares.

Mr. Lay didn’t disclose those stock sales publicly because regulations required that sales of shares back to a company be reported only in the year after they occur. Unlike his co-defendant in his fraud and conspiracy trial, former Enron Chief Executive Officer Jeffrey Skilling, Mr. Lay isn’t charged with improper stock sales.

However, Mr. Lay did tell workers less than three months before Enron filed for bankruptcy protection that he had bought stock when, in fact, he had sold more stock than he bought.

In a methodical yet blistering cross-examination, prosecutor John Hueston highlighted Mr. Lay’s complicated stock activity throughout 2001 to challenge the ex-chairman’s credibility in portraying himself as a loyal company man who put Enron first.

Mr. Lay’s demeanor was markedly more subdued than when Mr. Hueston first challenged him late Wednesday. At that time, Mr. Lay’s trademark public amiability disappeared as he raised his voice, scowled and snapped repeatedly at the prosecutor who secured an indictment against him in July 2004.

Yesterday, Mr. Lay often appeared to treat Mr. Hueston like an irritant, but answered inquiries in a matter-of-fact tone.

Mr. Hueston displayed records for jurors that showed Mr. Lay’s Enron stock ownership rose from 2.64 million shares to 2.76 million from January through October 2001. His stock purchases were reported publicly when they took place.

But the ex-chairman sold a total of 1.77 million shares back to Enron in February and from April through October that year to repay company loans.

“I didn’t know that until right now,” Mr. Lay said as Mr. Hueston pointed out the 1.77 million figure.

Mr. Lay had used his Enron stock as collateral on $100 million in personal bank loans, and those lenders issued margin calls for repayment throughout 2001 as the energy giant’s share price fell. He obtained cash from Enron to meet those margin calls.

“It was a lot more sufficient way to handle this problem than selling on the open market,” he testified. “I found it more convenient to use the line of credit. It was set up to provide me, and other senior executives, with more financial flexibility.”

Mr. Hueston pounded at the issue, asking why Mr. Lay didn’t disclose the sales immediately to investors and employees even if it wasn’t required.

Mr. Lay’s eyes narrowed as he said the prosecutor seemed to be suggesting that he broke the law.

“I was fully complying with all the existing regulations and requirements on my stock transactions,” Mr. Lay said.

Some jurors rolled their eyes.

But even the disclosures didn’t tell the whole story, Mr. Hueston demonstrated with Enron’s annual filings with the Securities and Exchange Commission for 1999 and 2000.

In 1999, Mr. Lay sold $8 million in Enron stock back to the company. In 2000, he sold the energy giant twice that much. But annual filings for both years said only that he had repaid $4 million loans in full.

Mr. Lay’s employment agreement with Enron was amended in 1999 to allow him to sell stock back to the energy giant to repay company loans. When Mr. Hueston asked why the amendment was never disclosed to the SEC, Mr. Lay replied, “I’ll accept your representation on that. It’s not something I can confirm.”

The ex-chairman also has explained repeatedly to jurors that he learned from an internal Enron attorney that he wasn’t conducting an illegal insider trade by selling company stock back to Enron because the energy giant ostensibly would have as much information as Mr. Lay about what transpired within its walls.

The government contends that Mr. Lay and Mr. Skilling repeatedly lied to investors and employees about Enron’s health, touting the company as strong when they reputedly knew accounting tricks masked failing businesses and other problems.

The two defendants counter that no fraud occurred at Enron other than that committed by a few executives who skimmed money from secret side deals and blame bad publicity as well as a loss of market confidence for the company’s swift descent into bankruptcy proceedings in December 2001.

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