- It was the ultimate "perp walk" - Kenneth Lay,
friend of two presidents and founder of the erstwhile seventh-largest corporation
in America - was paraded yesterday in handcuffs on his way to the federal
courthouse in Houston to be formally charged with "spearheading"
the most spectacular fraud in modern US business history.
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- Just three years ago Ken Lay was chairman of Enron, which
was seen as one of the most innovative and efficiently run companies in
the US. True, in that distant pre-9/11 summer of 2001, a few were starting
to have the odd doubt, that the Enron story might just be too good to be
true. But apart from a clutch of top executives at Enron and its auditors,
Arthur Andersen, no one could have imagined that before the year was out
Enron would have imploded in a $67bn (£36bn) bankruptcy that would
come to symbolise an entire era of corporate chicanery, ruthlessness and
greed. In the course of 2002 other companies - Tyco, WorldCom and Adelphia
- would tumble into disgrace. None, however, had the impact of Enron.
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- The firm Mr Lay created back in 1985 was the embodiment
of the modern conglomerate. "We like to think of ourselves as the
Microsoft of the energy world," the chairman liked to boast, as Enron's
sales, profits and stock continued an apparently unstoppable ascent. Enron,
however, was an edifice built on fraud. Its collapse consumed the savings
of thousands of its employees, brought down the venerable Arthur Andersen
- convicted of obstruction of justice in 2002 - and shook the credibility
of US financial markets. Its demise prompted the biggest overhaul of accounting
and corporate regulations in decades and, for a while at least, its shadow
fell on the White House.
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- Mr Lay was its friend and benefactor. Over the years,
the company contributed $600,000 to the various campaigns of George W Bush,
and Enron jets helped to ferry the Bush team back and forth from Florida
during the contested aftermath of the 2000 election. A grateful President
nicknamed him "Kenny Boy". Enron's folding refocused attention
on Mr Bush's cloudy business career, and "Kenny Boy's" trial
may yet do so again.
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- The 11-count indictment was formally unsealed yesterday.
It accuses Mr Lay of "taking over the helm of a criminal scheme"
during the last months of Enron's life and charges him with fraud and insider-trading.
Mr Lay concealed $7bn of Enron debt, thus conveying a false picture to
investors and its own employees, it says.
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- The former chairman has been released on unsecured bail
of $500,000. If convicted, however, he faces up to 30 years in prison.
"This proves that no man, however powerful, is above the law,"
James Comey, the deputy US attorney general, declared.
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- But matters may not be simple. Mr Lay has plainly been
a target of the Justice Department from the outset, but it took investigators
two and a half years to bring the charges - and they came only after Andrew
Fastow, Enron's former finance director and prime architect of the gigantic
fraud, agreed to co-operate with prosecutors in exchange for a 10-year
jail term.
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- Throughout, Mr Lay has proclaimed his innocence: "I
have done nothing wrong; the indictment is not justified," he said
in a brief statement shortly after news of the charges trickled out. In
court yesterday he responded with a crisp "not guilty" as each
of the counts was read. His lawyers served notice they would fight the
case tooth and nail.
-
- Their argument will be that during the period Enron went
sour, Mr Lay was not chief executive officer but a chairman whose duties
were mainly ceremonial. He thus had no idea of the web of off-balance sheet
partnerships created by Mr Fastow to prop up Enron's stock price and conceal
billions of dollars of losses and debt.
-
- That too will be the defence of Jeffrey Skilling, Enron's
chief executive officer until his surprise resignation for "personal
reasons" in August 2001, less than four months before the end. It
will, however, be a far harder sell for Mr Skilling, who was renowned for
his bullying, micro-managing style.
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- The 11 counts against Mr Lay have been added to an earlier
indictment against Mr Skilling and Enron's former chief accounting officer,
Rick Causey - an indication that the three will be tried together as co-authors
of the disaster.
-
- Some legal experts believe that the case against Mr Lay
is the weakest. Reputedly he was not one for e-mails and memos, making
it less likely there will be an incriminating paper-trail. In court, it
could be a case of his word against that of a convicted felon who has done
a deal to shorten his sentence.
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- But even Mr Lay's lawyers cannot dispute that between
August 2001 and the bankruptcy filing of 2 December 2001, their client
was chief executive as well as chairman. That August, after Mr Skilling
left, he received the celebrated letter from the whistle-blower Sherron
Watkins, an Enron vice-president, warning of a massive accounting scandal.
Yet Mr Lay insisted until the end that nothing was wrong, all the while
selling large chunks of his Enron holdings. (Ordinary employees, whose
pension holdings were largely in Enron stock, were barred from doing so.)
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- Moreover, the defendant portrayed as an ignorant front-man
is a trained economist, a skilled businessman who founded Enron and steered
the group through its early expansion. He was knowledgeable enough to have
been frequently consulted by an energy taskforce headed by Vice-President
Dick Cheney in 2001, and at one stage was widely tipped to be a member
of the Bush cabinet.
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- Lastly, as other lawyers point out, ignorance is no excuse.
Mr Lay's ultimate duty was to protect the interest of shareholders.
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- Even if he escapes legal punishment, Mr Lay's life is
in ruins. A man worth $400m barely three years ago has been reduced to
his last $1m, net of an anticipated $20m of legal fees. His Colorado ski
lodge has gone; his wife, Linda, has sold off much of the family furniture.
The once-feted grandee of the Texas business establishment is now rarely
seen, except at his Methodist church in Houston on Sundays.
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- His company too is little more than a picked-over carcass.
The workforce has fallen from 32,000 to 10,000. The empire whose sales
topped $100bn in 2000 now has a few pipelines in Latin America, some power
plants across Europe, the Caribbean and China, and a mid-sized telecoms
network.
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- As for creditors, owed $67bn, they will get 20 cents
in the dollar if they're lucky. Such is the inglorious end of Mr Lay's
Enron, emblem of an era that American business will want to forget; history
most certainly will not.
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