- The Washington Times - Monday, May 1, 2006

HOUSTON (AP) — Enron Corp. founder Kenneth L. Lay received a barrage of written warnings from employees questioning the energy giant’s accounting integrity in the fall of 2001 but said yesterday that he was too busy trying to save the company to investigate.

The ex-chairman was combative during his fifth day on the witness stand in his fraud and conspiracy trial, accusing a federal prosecutor of highlighting only negative information.

“I didn’t have that luxury [of hindsight] when I was right in the middle of battle,” Mr. Lay protested.

Prosecutor John Hueston, in his third day of cross-examination, sought to show that Mr. Lay ignored warnings of accounting impropriety and financial doom after resuming as chief executive upon the resignation of co-defendant Jeffrey Skilling from that role in mid-August 2001. Enron, once the seventh-largest company in the United States, filed for bankruptcy protection in December 2001.

Yet in November 2001, with Enron’s stock and reputation already sinking, Mr. Lay told employees he could “not have ever contemplated” what lay ahead for the company and its stockholders.

As he did last week, Mr. Lay bristled and bickered, saying he had received positive information along with negative.

One warning was issued in October 2001 via an e-mail from Jim Schweiger, a longtime trader, three days after Mr. Lay announced a massive third-quarter loss and $1.2 billion write-down in shareholder equity. The bulk of the losses had been triggered by the unwinding of financial structures, run by Chief Financial Officer Andrew Fastow, that prosecution witnesses testified were used to hide faltering businesses and boost earnings.

“The fact that senior management and the [Enron] board of directors knew these transactions were being used to manipulate earnings and the stock price, and took advantage of that knowledge to sell their ENE stock options, in my opinion, is criminal,” said Mr. Schweiger’s e-mail, which was displayed on a large screen, portions of it read aloud to jurors.

If Mr. Lay was going to “play the game of lying, cheating and stealing,” he should have a “plausible story,” the e-mail said.

Mr. Lay bristled when Mr. Hueston pressed him on why he didn’t investigate Mr. Schweiger’s accusations.

“I was getting information from all sides, Mr. Hueston,” Mr. Lay said.

Mr. Schweiger’s Oct. 19, 2001, e-mail also alluded to the millions of dollars Fastow had earned from the partnerships. Mr. Lay waited until the next week to assign two directors to ask the CFO about it — after regulators already launched an inquiry into it. Fastow was eventually fired over the amount he pocketed from the partnerships.

As early as September 2001, the Wall Street Journal also asked how much money Fastow earned from the partnerships. Mr. Lay repeated yesterday that he had refused to answer those questions at the behest of Enron public relations officials and did not himself ask Fastow about the earnings.

Mr. Lay and Mr. Skilling are accused of repeatedly lying to investors and employees about Enron’s financial prowess when they reputedly knew accounting tricks that hid bad news and inflated profits.

The two men counter that no fraud occurred at Enron other than that committed by a few executives who stole money through secret side deals. They attribute the company’s descent into bankruptcy proceedings to a combination of bad publicity and lost market confidence.

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