- The Washington Times - Saturday, February 23, 2002

Former Enron Chairman Kenneth L. Lay said he sold Enron stock last year and did not keep track of the questionable off-book partnerships that led to the energy giant's demise because he was planning to leave the company.
In a 17-page internal Enron interview, Mr. Lay said he had an attractive offer from an unnamed company in July when Enron's then-chief executive officer, Jeffrey Skilling, told him he was resigning, citing anguish and sleeplessness over the relentless fall of Enron's stock.
The resignation of the man Mr. Lay had groomed as a successor forced the Enron founder to return to running the company. He ended up presiding over Enron's bankruptcy filing on Dec. 2 after desperate but fruitless telephone calls to top officials in Washington to right the company's bad deals and to save it.
The interview with Mr. Lay by a special committee of Enron's board of directors was released with 100 pages of documents by the House Energy and Commerce Committee this week. The Senate Commerce Committee has scheduled a hearing with Mr. Skilling and Enron whistleblower Sherron Watkins on Tuesday.
Because Mr. Lay invoked his Fifth Amendment right not to testify in the face of congressional critics who have called for his criminal prosecution, the Jan. 16 interview represents the only public accounting for his actions since the scandal broke out.
The documents also include interviews with four other top Enron officers and its auditor, Arthur Andersen, who are believed to be at the center of the scandal and who took the Fifth Amendment in testimony before Congress this month.
The interviews paint a picture of buck-passing among the executives from Mr. Lay on down, with each saying they believed the questionable deals were legitimate because they had been approved by the appropriate accounting and legal officers.
Securities and Exchange Commission Chairman Harvey L. Pitt yesterday suggested that those excuses will be insufficient to exonerate key officers under investigation by the agency and the Justice Department for securities fraud and other crimes.
"Confidence in our capital markets cannot be maintained if the public believes everything is a game to enable corporations to rely on lawyers and other professionals, who in turn rely on a literal reading of the law or governing principles," he said in a speech to securities lawyers.
The extensive buck-passing by the well-paid officers of what was a top Fortune 500 corporation "is a major flaw in our system that Enron has exposed," he said, pledging to remedy the problem by tightening the rules for corporate officers and accountants even before Congress takes action.
Treasury Secretary Paul H. O'Neill, a former chief executive of Alcoa Inc., also dismissed the excuses offered by Enron officers.
"If you get paid the big bucks, you should know," he told the U.S. Chamber of Commerce on Thursday. "It's not OK to say I wasn't trained in this or I wasn't trained in that or I relied on somebody else. Responsibility and accountability at the end of the day means no excuses."
Mr. O'Neill, who is preparing potential changes to laws and regulations to address the Enron scandal, said corporate officers should be aware of all the details of their operations that investors and employees need to know to make wise investment decisions and that they should present that information clearly and succinctly in quarterly financial statements.
"To make sure you don't get the New York telephone book every quarter and try to figure out for yourself what is and what isn't important, I would give CEOs the duty to say, 'These are the five or 10 things that you really ought to pay attention to,'" he said.
Mr. Lay and other corporate officers in the internal interviews ascribe a great deal more knowledge and responsibility for the questionable deals to Mr. Skilling than he acknowledged in testimony before Congress this month.
Mr. Lay's account of Mr. Skilling's resignation, for example, contradicts his testimony that he resigned for personal reasons. Mr. Lay disclosed that Mr. Skilling was worried and losing sleep because Enron's stock was dropping and he couldn't do anything about it.
The fall of Enron's stock was a key reason the corporation's "Raptor" partnerships failed, forcing it to announce a $1 billion charge against equity that led to the further collapse of the stock and the company in the fall.
Richard Causey, Enron's former chief accounting officer, told interviewers that Mr. Skilling, Mr. Lay and other top officers knew the Raptor deals were not designed to protect Enron against a major decline in asset values and would fail if the company stock dropped below $20.
Mr. Causey, who said the devastating $1 billion equity charge was the result of a "simple mistake" in accounting, said the Raptor deals were designed to protect Enron against wide swings in the value of its assets. But they were not true "hedges" that transferred the risk of failure to a third party.
Both Mr. Skilling and Mr. Lay said they believed the deals were true hedges. Mr. Lay could not distinguish between a true hedge and an "accounting hedge." He said he took only 12 hours of accounting in business school and did not understand the intricacies of the off-book financings.
Mr. Lay said Enron's increasing use of off-balance-sheet financing in the 1990s was designed to enable the company to grow faster and please investors.
He said the company was under considerable pressure from Wall Street since 1995 to provide fast growth in earnings to justify its high stock price.
Richard Buy, Enron's chief risk officer, said the Raptor deals were designed to meet high earnings targets set by the company and Wall Street analysts, and that is the principal reason they benefited Enron.
Enron's accounting for the transactions was "aggressive but not over the line," he said, in a view that was echoed by Enron's lead auditor, David Duncan. Mr. Duncan, of Andersen, said the "beauty" of the Raptor deals is that they enabled Enron to book income when its stock price rose.
Investigators have charged that booking income from an increase in the company's stock price is blatant accounting fraud.
Andrew Fastow, the chief financial officer who reaped $30 million from the Raptor deals, said Enron Treasurer Ben Glisan designed the deals' structure and that Andersen blessed them as "working perfectly under the accounting rules."
He said the only problem he saw with the deals was the "Wall Street Journal risk" that is, that they might be discovered by the press and appear fishy to outsiders.
Mr. Lay said Mr. Fastow's interest in the deals posed what he thought was a manageable conflict of interest, but he didn't realize how much Mr. Fastow had made. When he learned about Mr. Fastow's big profits in October as the company was unraveling, Mr. Lay said he was shocked and fired him.


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