“You have a long list of people to blame for Enron’s collapse, sir, and it gets longer and longer as you testify,” prosecutor John Hueston said in wrapping up his cross-examination of Lay. “And your list of people to blame and events to blame did not include yourself, did it, sir?” Lay answered: “I did everything I could humanly do during this time. Did I make mistakes? I’m sure I did, Mr. Hueston. I had to make real-time decisions based on the information I had at the time.”
* * *
Lay’s parting sentiments to the jury on his final day of testimony were of love for Enron. “I loved Enron very much. I think we built a great company. I think the most painful thing in my life was watching Enron finally have to go into bankruptcy.”
* * *
Hueston presented emails and employee-survey results to show that Lay received warnings about accounting issues at Enron from several employees, not just Sherron Watkins. “I’ve lost all respect for Enron senior management,” one Enron employee said, suggesting that it was criminal for Enron executives to exercise stock options when they knew the books were being cooked. Lay told Hueston that it was easy in hindsight to second-guess his decisions while at the helm of Enron. “The corpse is on the gurney now, Mr. Hueston, and you’re carving it up any way you want to carve it up,” Lay said. “I didn’t have that luxury when I was right in the middle of battle.”
* * *
John Hueston said Lay was warned about “aggressive” accounting that went on at Enron. Lay countered that “aggressive accounting was a catchphrase” for concerns about Enron’s controversial partnerships and that Enron handled those deals properly.
* * *
Hueston questioned Lay about positive remarks he had made about Drexel Burnham Lambert, a Wall Street firm that went bankrupt in 1990 after pleading guilty to illegal securities trading. Lay said the firm was financially innovative and that “failure is not equated with criminal activity, or does not need to be equated with criminal activity.” He went further to say that the company encountered “a run on the bank back in the 1980s based on a number of events that occurred.”
* * *
Lay said to colleagues in 2001 that The Wall Street Journal had a “hate on” for Enron due to a series of articles that questioned former Enron CFO Andrew Fastow and his controversial side partnerships. “I might have used that term,” Lay said, adding that he thought the Journal was “trying to paint a very negative image of Enron.”
* * *
Hueston questioned Lay’s decision to not disclose his sale of millions of dollars worth of Enron shares back to the company between 1999 and 2001 in order to repay loans from the company. Lay replied that annual SEC filings in 1999 and 2000 disclosed that he repaid the loans. “I always tried to comply with whatever the regulations and requirements were,” Lay said. These loans, it’s worth noting, were different than bank loans to Lay that resulted in bank-fraud charges that were addressed in a separate trial that started at the conclusion of the Lay-Skilling trial.
* * *
Lay grew tired of Hueston’s accounting questions. “I think it’s a real waste of the jury’s time,” Lay scolded the prosecutor. “We’ve spent an hour on this,” he said, referring to allegations that he had tried to skirt accounting rules requiring writedowns on an overvalued British water utility, Wessex Water Ltd. Even Judge Lake, who has run a tight ship on this trial, seemed to be tired of the line of questioning. Referring to the government’s rebuttal witnesses the judge said, “”Hopefully they won’t all be on Wessex goodwill impairment.”
* * *
Prosecutor John Hueston’s cross-examination of Lay escalated quickly and the two frequently clashed. Hueston pressed Lay about an unpaid loan. “As of today, you have not repaid one dime of the principle loan of that $7.5 million?” Hueston asked. “We tried and you blocked it,” Lay snapped, adding: “Mr. Hueston, you know you blocked it,” though Lay didn’t elaborate. “It’s a simple question,” Hueston pressed. “It’s a simple answer,” Lay retorted. “Mr. Hueston, when I was sworn in here, I swore to tell the truth and the whole truth, not the partial truth.”
* * *
Lay admitted to Hueston that he tried to contact Vince Kaminski, a former top risk analyst at Enron, nine days before Kaminski testified for the prosecution. Hueston suggested that Lay was trying to sync stories with Kaminski. Lay replied: “I was trying to reach Vince Kaminski a long time ago before I even knew he would testify,” adding: “I was trying to reconnect with Vince, to talk to him about some issues I wanted to talk to him about.” In Kaminski’s testimony, he said he got a cold reaction when he told Lay and other executives in October 2001 that Enron needed “come clean” on questionable financial structures.
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Lay testified that he tried to call two Goldman Sachs executives, who were on the defense’s witness list, during the trial to talk about a September 2001 meeting. Lay and Fastow gave contradicting testimony about that meeting. On the stand, Lay explained: “I was just trying to make sure that all of my facts were as accurate as they could be,” adding that Fastow “gave a fake version of that meeting.”
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Lay angrily denied Hueston’s suggestion that calls to witnesses in this trial were attempts by Lay to influence their testimony. “You are distorting the phrase ‘in agreement with my story,’ ” Lay snapped. “I don’t have a story.” He added that he made the calls simply to refresh his memory and confirm his own recollection of events.
* * *
Hueston brought up the issue of Lay’s attorney calling government witness and former Enron Treasurer Ben Glisan Jr. a “performing monkey” outside the courthouse, while Lay stood by. Hueston asked if Lay later approached Glisan in sympathy. Lay said he was merely trying to comfort Glisan in a tough situation. Hueston shot back: “You made him feel better by calling him a monkey?” Lay replied: “I can’t take full responsibility for what my lawyers say or do.”
* * *
Earlier, as Secrest wrapped up his direct questioning of Lay, he asked the former Enron chairman about a $1 billion charge Enron took in October 2001 that Lay characterized as a “nonrecurring event.” Lay said outside accountants from Arthur Andersen had cleared the classification. “At least at that point they had no problem with the accounting.”
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In an October 2001 conference call, Lay told analysts that Enron was “not trying to conceal anything. We’re not trying to hide anything.” Secrest asked Lay if he still believed those remarks to be fair and accurate. “I do,” Lay replied. “I did then. I do today. Based on what I knew.”
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On the subject of a series of articles that appeared in The Wall Street Journal in 2001, Lay told jurors that it was “against every bone in my body” not to talk to reporters for the newspaper when it first raised questions about some Enron deals in September 2001. “My policy had always been it’s better to talk to the press than not talk to the press,” Lay said. It was PR chief Mark Palmer who told him that it would be best not to speak to the reporters, Lay told the jury, adding that his reply was: “Even though it’s against every bone in my body, I will agree with your recommendation.” He added, “We thought The Wall Street Journal was on a witch hunt against Andy Fastow and maybe Enron.”
* * *
By the time The Wall Street Journal wrote about the Fastow partnerships, they were “an “old dead issue,” Lay said. He added that the Raptors, another Fastow invention, were “history” by the time they came under scrutiny from regulators as Enron had unwound them. “These transactions have gotten so much attention in the last four years,” Lay told jurors. “But they really got so little of our attention those two years” they were in use before Enron crashed, he added.
* * *
Secrest asked Lay who gave Enron transactions quirky names like the Raptors. “Beats the hell out of me,” Lay replied.
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Lay said he remained supportive of Fastow — even when he was removed from the CFO job — because “I, the board, senior management, believed he had done a good job as CFO… was doing a good job, and had no reason to believe that he wasn’t doing a great job.” Lay said that Fastow’s controversial partnerships were properly set up, approved by the board and that safeguards were put in place to ensure there weren’t any conflicts of interest. And in late 2001 when Enron took a $1 billion charge to third-quarter earnings, Lay said: “At this time, we didn’t have any information or knowledge that Andy Fastow had done anything inappropriate.”
* * *
Lay told jurors that he never spoke to Skilling about allegations of wrongdoing at Enron after Skilling resigned because it would have been “inappropriate.” Skilling had previously testified that he and Lay met soon after the allegations surfaced, but that they only discussed strategy.
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Lay testified that, after two directors informed him that Fastow was paid about $45 million for his LJM work, his view of the CFO changed. “All of a sudden it appeared to me, and the board, that maybe Andy Fastow wasn’t what he appeared to be over these years,” Lay said. He also told jurors that, in October 2001, when the Enron crisis surfaced, he “realized that this was going to be a real battle.” He said he wasn’t yet worried about the viability of Enron, but he began to think that “there might be a more serious problem than I had thought.”
* * *
On day one of direct questioning, Lay lawyer George Secrest asked Lay if he’d conspired to violate federal securities rules or broke wire fraud and securities fraud laws. Mr. Lay replied firmly, “I did not.” He went even further: “I do not think there was a conspiracy. Let me be entirely clear: the last thing I would do is step back in as CEO and pick up a conspiracy.” In fact, Lay told jurors, at the time he took the reins, he believed Enron was “one of the strongest companies in the country.”
* * *
“I’m anxious to tell the truth about Enron,” Lay testified.
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“I’ve not only pursued the American dream, I’ve achieved it,” Lay told Secrest. “I suppose we could say the last few years, I’ve also achieved the American nightmare.”
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“I’ve been very blessed throughout my life,” he said.
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When Secrest was asking him if he was part of a conspiracy at Enron, for example, Lay replied that such a thing was “the last thing he would think of doing … according to my religious faith.”
* * *
Lay told jurors that he was extremely distraught by the “hurt and destruction and pain” that resulted from Enron’s 2001 collapse, especially the employees who lost their jobs. “I’m sure there’s absolutely nothing in my life, including the loss of life of many of my loved ones, that even comes close to the same level of pain, and the same enduring pain, that has caused,” Lay said.
* * *
When Secrest asked Lay what his worst mistake was as head of Enron, Lay said the answer was easy — hiring Andrew Fastow, who admitted stealing tens of millions of dollars from the company. “It all began with the deceit of Andy Fastow,” Lay told jurors. Lay said Fastow’s theft was the beginning of the end for Enron.
* * *
Lay said Enron’s implosion was made possible by a “tinderbox” of external factors including the September 11 terrorist attacks and the market decline that came after the dot-com bubble burst. “In the end, Enron’s failure was caused by a classic run on the bank,” Lay testified. He cited published articles about former Fastow’s controversial partnerships. “They had information we didn’t even have at that time, even in late 2001,” Lay told jurors. “It was an environment very ripe to create an investor panic and more importantly a credit-market panic.” He added that Enron was then faced with “a firestorm that we couldn’t stop.”
* * *
Fastow alleged that, in 2001, he gave Lay a rundown of Enron’s problems, including huge write-offs, a massive accounting error and the deterioration of fragile financial structures that Enron used to hide losses. When asked whether Fastow ever discussed such a list of impending problems with him, Lay said: “That did not happen, period.”
* * *
Asked by his lawyer about what it’s been like watching the trial unfold, Lay said, “It’s been very interesting,”, adding: “We’ve seen a lot of interesting testimony. We’ve seen a lot of interesting people, a lot of allegations, a lot of lies, a lot of misinformation and some truth.”
