- The Washington Times - Monday, September 29, 2003

The Securities and Exchange Commission yesterday sought a federal court order forcing former Enron Corp. Chairman Kenneth Lay to produce documents that the corporate tycoon indicated might implicate him in Enron’s massive fraud.

In its first move against Mr. Lay, the SEC told the U.S. District Court here that he is improperly citing his Fifth Amendment right against self-incrimination in seeking to withhold corporate memos and letters that contain revealing hand-written notes he penned while he was chairman.

Mr. Lay, who is a friend and contributor to President Bush, and his attorneys declined to comment.

“The commission’s investigation includes whether Lay had knowledge of, or was involved in, fraudulent activities at Enron,” the agency told the court, hinting that the politically connected executive is obstructing the SEC’s and Justice Department’s prosecution of fraud at the bankrupt energy giant.

Yesterday’s move may be the first step toward prosecution of Enron’s top brass, attorneys say. The Justice Department also is weighing charges against Jeffrey Skilling, Enron’s former chief executive officer who presided while his staff was manipulating the corporate books in various ways to hide debt and plump up earnings in 2001.

U.S. prosecutors already have charged 19 former Enron officials, including ex-Chief Financial Officer Andrew Fastow, for their roles in the collapse of the Houston-based company. Former Enron Treasurer Ben Glisan was sentenced to five years in jail for his part in the scandal this month.

The opening shot against Mr. Lay came amid a flurry of activity in high-profile corporate-fraud cases, including the beginning of trials in Manhattan, N.Y., against former Tyco executives Dennis Kozlowski and Mark Swartz on corporate-theft charges, and former Credit Suisse First Boston investment banker Frank Quattrone on obstruction of justice charges.

The SEC also took tentative steps yesterday toward regulating for the first time hedge funds, the secretive investment vehicles that once were the province of the super-rich. Recently, they have been attracting small investors who want to gamble on making big returns with the risk of taking big losses as well.

SEC Chairman William Donaldson also met for the first time with the new chairman of the New York Stock Exchange, John Reed, and hinted at the possibility of sweeping changes at the venerable Big Board to avert scandals like the pay controversy that this month toppled the exchange’s former chairman, Richard Grasso.

In the Enron case, the SEC originally subpoenaed documents from Mr. Lay on Jan. 2, 2002, while he was still chairman and chief executive of the company, the SEC said in its court filing. The request encompassed documents such as appointment books, calendars and other materials that would reflect meetings and conversations concerning the company and its related entities.

Mr. Lay produced thousands of pages of documents before resigning as chairman on Jan. 23, 2002, the SEC said. But when he traveled to testify before the SEC in Washington in February 2002, he asserted his Fifth Amendment right to remain silent and refused to turn over some subpoenaed documents. His lawyers said the documents included copies of Enron memos with his handwritten annotations, as well as copies of letters, position papers and speeches in draft form.

Mr. Lay’s lawyers said the documents reflected the CEO’s “thought processes” and thus were privileged and personal, the SEC said.

“It’s always a close question as to whether something is a personal document subject to the Fifth Amendment privilege or a corporate document,” said Alan Bromberg, a law professor at Southern Methodist University in Dallas.

Mr. Lay’s lawyers would be wise to let the court view the documents privately to determine whether they are personal, he said.

Mr. Fastow, who the government says masterminded the complex accounting schemes that led to Enron’s bankruptcy in December 2001, is the highest-ranking Enron executive charged to date. He faces nearly 100 criminal charges, including fraud, money laundering, conspiracy and obstruction of justice. The government also has threatened to jail his wife for assisting in the corporate fraud.

Despite the tremendous pressure the government’s case puts on Mr. Fastow to cooperate in going after more senior executives, the once-celebrated corporate finance wizard has consistently maintained his innocence. He has vowed to show that he was only acting on orders in a trial scheduled for April. He currently is free on $5 million bond.

In pleading guilty to conspiracy earlier this month, former Enron Treasurer Glisan made no deal to implicate higher-ups such as Mr. Lay. But his five-year sentence — the maximum under the law — sends what one federal lawyer called “a somewhat chilling message” to Mr. Fastow and other executives under the gun.

While the government has not filed criminal charges against Mr. Lay or Mr. Skilling, the two were named in a civil lawsuit filed by the Labor Department in June seeking to recover hundreds of millions of dollars in retirement money that Enron employees lost when the company entered bankruptcy.

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