Lay charged in ‘massive conspiracy’

Federal prosecutors yesterday charged Enron Corp. founder Kenneth Lay with “a massive conspiracy” to deceive the investing public in an 11-count indictment that Mr. Lay said was politically motivated.

The once-celebrated corporate chief and friend of President Bush pleaded not guilty to charges that he enriched himself through lucrative stock-compensation deals while, at the same time, propping up Enron’s stock by hiding the failing company’s condition from investors, lenders and employees.

“Ken Lay took the helm of the criminal scheme” after the abrupt resignation of former Chief Executive Officer Jeffrey Skilling in August 2001, said Andrew Weissman, head of the Justice Department’s Enron Task Force, after a hearing before the U.S. District Court in Houston.

“Rather than come clean and tell the unvarnished truth, Lay chose to conceal and distort and mislead at the expense of shareholders and employees, people to whom he owed a duty of complete candor,” he said.

The charges against Mr. Lay were folded into the government’s fraud and conspiracy case against Mr. Skilling, who was indicted in February.

Both executives were called before Congress two years ago to explain their role in the first of a series of major corporate scandals, originating in the 1990s, that erased billions of dollars of stock wealth and retirement savings and touched off the most-stringent rewrite of securities law in a half-century.

Mr. Lay took the Fifth Amendment in his appearances before Congress, but yesterday, he defended himself in an unusual press conference at which he decried the “political overtones” that have shadowed the Enron investigation from the start.

When the scandal broke in late 2001, Mr. Lay, who was Mr. Bush’s top contributor in the 2000 presidential campaign, was the subject of constant political press coverage, and many in Washington thought the case eventually would lead to the president.

Noting that Mr. Bush’s re-election bid now looks shaky, Mr. Lay said, “It takes a lot more courage for prosecutors not to indict me than to indict me.”

He was released on $500,000 bond by U.S. Magistrate Judge Mary Milloy.

Mr. Lay said as the person who led Enron from a small Texas pipeline company to a world energy giant during the 1990s, he must take responsibility for its spectacular fall into bankruptcy in December 2001.

“I continue to grieve over the loss of the company and my failure at not being able to save it,” he said. “But failure does not equate to a crime.”

The corporate leviathan had 30,000 employees, 500 vice presidents, and offices in 30 countries, he said, insisting he had no knowledge of the crimes committed by Andrew Fastow, the Enron chief financial officer who is cooperating with the government and is expected to testify against him.

Prosecutors denied any political motives, saying the evidence led to Mr. Lay. White House spokesman Scott McClellan gave the president credit, however, for harpooning the biggest fish yet to be caught in the government’s enforcement net.

“This president has worked to go after those wrongdoers and directed his administration to pursue those who are dishonest in the boardroom,” he said.

Sen. John Kerry of Massachusetts, the presumptive Democratic presidential nominee, has charged Mr. Bush with dragging his feet in the Enron prosecution, suggesting that Mr. Lay’s ties with the Bush family was the reason.

Commenting on the Lay indictment yesterday, Kerry spokeswoman Stephanie Cutter said: “It was three years too late.”

Prosecutors and most legal analysts say the length of time it took to pursue Mr. Lay owes mostly to the extraordinarily complicated financial schemes that Fastow, in January, admitted to devising in order to hide Enron’s debts and fool Wall Street analysts and investors.

The indictment and a separate civil suit by the Securities and Exchange Commission (SEC) charge that Mr. Lay was involved with covering up one such scheme, dubbed “the Raptors,” whose unraveling helped cause Enron’s financial collapse.

But Mr. Lay and his defenders also point to the complexity of the accounting devices in contending that the chief executive was not aware of the intricate crimes perpetrated by Fastow and a few cohorts in the finance office, but instead trusted an array of accountants and lawyers to ensure that the company complied with the law.

Enron whistle-blower Sherron Watkins, who sought to alert Mr. Lay to the accounting shenanigans in a memo when he resumed control of the company after a six-month hiatus in August 2001, said she thought Mr. Lay was “duped” by Mr. Skilling and Fastow.

Prosecutors say Mr. Lay was well-aware, however, of the massive debt write-downs that Enron was planning in the fall of 2001 and a relatively uncomplicated scheme to hide the losses of Enron’s Energy Services in another division. Yet, he encouraged company employees and investors to keep the faith and keep buying company stock.

All the while, the government contends, Mr. Lay was unloading his own stock options and reaping millions in illegal profits. Mr. Lay said he sold some of his shares primarily because brokerage loans he had taken out to purchase stock had been called in.

Mr. Lay could receive up to 175 years in prison and $5.7 million in fines if convicted on all counts. The SEC also is seeking to disgorge $90 million of profits from Mr. Lay’s insider stock transactions.

Mr. Lay, once worth several hundred million dollars, said he now has about $20 million.