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Report Says Feds Reviewing Lay's Comments in Months before Enron's Bankruptcy

Report Says Feds Reviewing Lay's Comments in Months before Enron's Bankruptcy

Former Enron Corp. Chairman Kenneth Lay is under the microscope by federal investigators to determine whether there are grounds to bring criminal charges against him, according to the Wall Street Journal.

In Monday's edition, the newspaper said investigators are specifically interested in the months before Enron filed for bankruptcy in December 2001. In August 2001, CEO Jeffrey Skilling resigned and Lay assumed the CEO role for the last half of the year (see Daily GPI, Aug. 15, 2001). Sources told the Journal that officials are comparing what Lay has said he knew to his "upbeat public remarks about the company's condition." In the final six months, Lay presided over several conference calls, reassuring analysts on several occasions that the company was operating well (see Daily GPI, Oct. 24, 2001).

Lay has repeatedly denied any wrongdoing while he headed Enron. His attorneys said that Lay's public remarks in the last half of 2001 "were made in good faith and that he was unaware of the scope of some of the problems facing Enron." According to the Journal, the final six months of 2001 are important because "the departure of Mr. Skilling meant that Mr. Lay 'can't say that he wasn't in charge' during that critical period."

Skilling also is being investigated, sources said, and "prosecutors believe that they might be in a position to file criminal charges against him within the next several weeks," according to the newspaper. A decision on whether to prosecute Lay is not close, it said. Lay was Enron's CEO for about 15 years. According to a report by the bankruptcy court's examiner Neal Batson, Lay and Skilling rarely used e-mail and "also apparently did not retain many documents" (see Daily GPI, March 7, 2003; Nov. 25, 2003).

The Journal interviewed Lay following Skilling's resignation in August 2001, and Lay said that the resignation had nothing to do with Enron's falling stock price. However, he later told an internal company investigation that "Skilling had cited worries about the falling stock price when he first told the chairman of his plans to resign."

A few days following Skilling's resignation, former Enron Vice President Sherron Watkins sent a memo to Lay that detailed her concerns about some of the company's off-balance sheet transactions. "As late as October 2001, Mr. Lay was expressing relative ignorance about the Raptor arrangement in another Journal interview, to the point of saying that he couldn't even recall its name. In a later written reply to reporters' questions, Mr. Lay said he hadn't been trying to hide information but simply hadn't remembered the name."

In the two-week period after Watkins' memo, the bankruptcy examiner reported that Lay had borrowed about $16 million from Enron and repaid it with some of his Enron stock. "Prosecutors have been looking at Mr. Lay's stock dealings but haven't found a basis to bring criminal charges, said one person familiar with the probe," the Journal reported.

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