Comments on: Ken Lay’s Contributions

By: Rich Rostrom

Rich Rostrom — Mon, 10 Jul 2006 20:35:11 +0000

My understanding is that the only Enron stock Lay sold (in the last year) was forced sales to meet margin calls and similar obligations. He didn’t ‘cash out’; he rode the plane into the ground. I think he really believed that if he could just keep the eggs in the air a bit longer, Enron’s various bad investments were going to turn around and pay off. He didn’t understand how bad things were; he let Fastow and others play too many complicated games. It’s an old story. He _was_ guilty of fraud, but not (IMHO) malicious fraud.

_Skilling_ cashed in and bailed out early. I saw the forfeiture demands issued by the Feds against both of them. From Lay, they wanted two pieces of real estate worth less than $10M (one of them his home, IIRC). From Skilling, they wanted real estate, cash, and investments totalling about $100M.

By: steve sturm

steve sturm — Sat, 08 Jul 2006 11:56:10 +0000

I don’t know how the defense could have claimed the only thing wrong with Enron/Enron’s OBEs was the money Fastow stole. It was clear that, once it was understood that there wasn’t in fact true third party involvement, those entities needed to be consolidated on Enron’s books… which was the reason for Enron’s restating its reported income and debt. The money Fastow took was relatively trivial ($25 million or so in a company Enron’s size is/was a rounding error).

After thinking it a bit, I would guess that if Lay had gone the dummy route, then his and Skilling’s trials would likely have been separated (don’t know, I’ll leave it to the guys who actually know criminal procedure)… so there may not have been a conflict between the two, at least not within their individual trials.

And I actually thought Ebbers had put on a decent defense. The prosecution had pretty much a single witness who couldn’t document anything he claimed. And I thought Ebbers came off a whole lot better than Lay and Skilling did. He hadn’t been selling off stock, he hadn’t been caught talking out of both sides of his mouth. As for Scrushy, that trial has to be viewed as the OJ of the corporate corruption trials. No other way to explain it.

By: James B. Shearer

James B. Shearer — Sat, 08 Jul 2006 09:08:04 +0000

steve sturm, it is my understanding that the defense was claiming the only thing wrong with the books was the money Fastow stole and that the amount stolen was not material for a company of Enron’s size. The defense claimed Enron’s demise was due to a “run on the bank” effect when Fastow’s thefts were discovered. I believe this is in fact nonsense, there were many other problems such as the overstated assets you mention and with honest accounting Enron was hopelessly insolvent and had been for some time. I thought your claim that the stock given Enron employees was actually worthless (although the employees didn’t know it at the time) implied as much.

It is true that if Lay had defended himself along the lines I suggested this might have angered Skilling. However I don’t see what Skilling could have done about it. Even if Skilling made a deal with the government I doubt Skilling had a lot of evidence implicating Lay to offer.

It is true Ebbers was convicted (I thought his defense was poor as well) but Scrushy was acquitted with an ignorance defence.

I think Lay was completely in denial about what happened at Enron and his attorneys were unwilling or unable to get him to face reality.

By: steve sturm

steve sturm — Sat, 08 Jul 2006 02:32:50 +0000

James: why exactly was their defense nonsense (other, of course, than the fact that it didn’t work)? Up to the point where Fastow’s OBE frauds were revealed, Enron had no problem borrowing money. They had allegedly made billions of dollars in profits from whatever they were doing in the California energy markets. True, the company had a whole lot of overstated assets and equity, but isn’t it possible that, even with the restatements, they still would have had positive equity?

As for your recommendation that Lay play the ignorant fool, I think that would have created huge problems with Skilling, who certainly wasn’t in a position to do the same. As I understand things, Skilling cut Lay a huge break by giving him access to defense materials Skilling had paid for… which Skilling wouldn’t have done had Lay been taking a position adverse Skilling. And don’t forget Ebbers had been convicted despite trying the fool play… maybe that factored into Lay’s thinking as well.

By: nk

nk — Sat, 08 Jul 2006 01:59:45 +0000

I still have not figured out “global warming”. [I freely admit that I am not the brightest bulb in the room.] Is he being cremated? The products of organic decomposition? The exhaust gases from his funeral procession? The carbon dioxide exhaled by his wailing mourners? … ?

[All of the above, plus any residual hot air that did not get released during his lifetime. -X]

By: James B. Shearer

James B. Shearer — Fri, 07 Jul 2006 20:04:55 +0000

steve sturm, in my view the entire defense stategy was flawed. The defense argued that Enron was a basically sound company undone by a crisis of confidence triggered by revelation of Fastow’s misdeeds. Since this is nonsense, Lay was going to have trouble selling it to the jury no matter how well he was prepped for his testimony.

I think Lay would have had a better chance with a stupidity and gullibility defense. The defense should have conceded that Enron was a house of cards with books that bore no relation to reality but contended Lay was not criminally responsible for this, he was just too stupid and gullible to understand what was going on. But probably Lay’s ego would not allow such a defense (and perhaps his lawyers were content to collect their fees and let Lay hang him himself rather than give Lay some straight talk and risk being fired).

By: steve sturm

steve sturm — Fri, 07 Jul 2006 11:01:22 +0000

Nels: You may be right, but I’d be surprised if the SEC let anybody off the hook in such a high-profile case.

By: Nels Nelson

Nels Nelson — Fri, 07 Jul 2006 04:36:45 +0000

Steve, probably I was a little loose in using the term "many"; I count 10 Enron executives who were charged with insider trading (or more serious charges that included insider trading as part of the complaint). And J. Clifford Baxter, who committed suicide early in the investigation, would likely also have been charged. My guess is that other executives knew, and profited from, inside knowledge, but that the SEC didn't have enough evidence against them.

By: steve sturm

steve sturm — Fri, 07 Jul 2006 03:48:21 +0000

They screwed up in preparing Lay for his testimony, in not better preparing him to keep his cool, in not better anticipating and preparing Lay for the ways the prosecution would try to undermine Lay (for instance, the whole bit about Lay’s son selling stock short, and in the bit about investing in Skilling’s (then?) girlfriend’s company.. in both cases, Lay should have been prepped, yet he fumbled for answers when the prosecution brought them up). From day one, the trial hinged on whether the jury found Lay likeable and believable… and the defense did a terrible job in that regard. To be fair, Lay was being represented by the second string, as his lead was out sick, but, at $400+ an hour, even the guys coming in off the bench should have done a better job. Mrs. Lay ought to ask for their money back (if for no other reason than to dole it out in settlement of the civil suits still outstanding).

By: James B. Shearer

James B. Shearer — Fri, 07 Jul 2006 03:27:39 +0000

steve sturm, what do you think Lay’s lawyers did wrong?

In my opinion their biggest mistake was allowing Lay to continue living in a fantasy world in which he was completely innocent.