Former Enron Chairman and CEO Kenneth Lay’s last-minute refusal to honor his long-standing commitment to testify Monday before the Senate Commerce Committee freed up his day for other activities. One hopes that the self-pitying Mr. Lay, who wimpishly sent his wife last week to plead poverty on NBC’s “Today” in an interview taped at the couple’s $7 million Houston abode, used some of Monday’s free time to view the C-SPAN-televised testimony of William C. Powers Jr. before a subcommittee of the House Financial Services Committee. Mr. Powers, the dean of the University of Texas law school and a member of Enron’s board of directors, headed a special investigative committee that sought to learn how Enron, which spent four years adding $50 billion worth of market capitalization, destroyed every dime of it in 10 months. It left countless shareholders holding empty bags, including thousands of Enron’s own employees, who saw their entire life savings vanish in that brief period.
“[T]here was a fundamental default of leadership and management,” Mr. Powers told the subcommittee. “Leadership and management begin at the top, with the CEO, Ken Lay.” In case Mr. Lay didn’t get the message, he could refer to the damning 217-page report released Saturday by Mr. Powers and other members of Enron’s internal investigative committee. That report, which characterized Mr. Lay as “the captain of the ship,” blistered him for his failure to perform his fiduciary duties.
For his part, Mr. Lay, the founder of Enron and chairman for the entire four-year period under investigation and CEO for all but six months, told Enron’s panel that he did not know what was going on in his own company. Mr. Powers viewed as intentional the manipulation of Enron’s profits by high-level executives, who unfairly earned personal profits through schemes to hide billions of dollars of Enron debt and losses in entities excluded from Enron’s balance sheet and income statement. Mr. Powers concluded in his report that Mr. Lay “bears significant responsibility for those flawed decisions, as well as for Enron’s failure to implement sufficiently rigorous procedural controls to prevent the abuses that flowed from this inherent conflict of interest.”
The report by Enron’s panel focuses on the numerous off-the-books partnerships established by Chief Financial Officer Andrew Fastow to conceal Enron debt and losses. Mr. Fastow is estimated to have earned at least $30 million from these ventures. “Enron employees involved in the partnerships were enriched, in the aggregate, by tens of millions of dollars they never should have received,” the report charged. True, but small potatoes compared to the really big money that Enron insiders made from selling Enron shares they received in stock-option packages.
The entire Enron scheme revolved around keeping the stock price soaring. It peaked at $90 per share. According to an analysis submitted to the bankruptcy court by Amalgamated Bank, whose pension fund was a shareholder, Mr. Lay raked in more than $100 million in stock sales since October 1999. Another executive received more than $350 million. Six others received between $50 million and $80 million each. Mr. Lay and others can insist all they want that they did not know their company was a house of cards. But their actions frenetically selling stock before the collapse is exactly what one would do if he did know.