On stand, Lay paints an unusual picture - Print Version - International Herald Tribune

On stand, Lay paints an unusual picture - Print Version - International Herald Tribune: "He could not recall numerous meetings described by Enron directors and executives, in which a variety of concerns were raised about Enron's problems."

On stand, Lay paints an unusual picture
Floyd Norris International Herald Tribune
FRIDAY, MAY 5, 2006
The bad old days were back in Houston as Kenneth Lay, the man who presided over the growth and collapse of Enron, tried to persuade a jury that he does not belong in prison.

This was a witness who still thinks that the funny numbers Enron used were perfectly reasonable and, indeed, show just how healthy the company was.

"Aggressive accounting," Lay believes, is one of the things that made America great.

Reading the testimony is like a trip to the 1990s, when those who complained about corporate manipulation of earnings numbers were seen as cranks.

Whether or not Lay was convincing is for the jury to decide, but he certainly appeared sincere.

Here is what he said to prove that he had no reason in October 2001 to lie to Enron's auditors, and thus avert a large asset write-down that the prosecutor suggested might have caused the company to implode then, rather than a few months later:

"I felt that Enron was incredibly strong," he testified.

"We were getting ready to announce the strongest quarter in our operating business that we'd ever had in the history of the company, as well as a lot of other really positive indicators that we were, in fact, going to continue to grow at a very rapid rate and do very well through the rest of that year and well into the next year."

That was the message of the metrics Enron urged investors to analyze. By those measures, this is a company that went bankrupt without ever reporting a bad quarter.

Did Lay learn that such metrics can mislead? He did not.

He seemed incredulous that anyone would object to his selling $70 million of stock back to Enron in 2001, sales he did not have to report until the next year.

That the reports Lay did file showed him owning 1.7 million more shares than he actually had - while he was telling others to buy the stock - simply reflected decisions made by Enron lawyers, not by him.

Lay took umbrage when the prosecutor, John Hueston, suggested that "one of the most substantive and disturbing allegations" raised by Enron employees was that the company used aggressive accounting.

"Aggressive accounting," he told the prosecutor, "helped a lot of entrepreneurials, including female and African-American entrepreneurials, start businesses that otherwise could not have been created."

Did he really mean to say that the only way to create jobs is to come up with clever ways to make numbers look better? There was no follow-up question.

Lay had trouble remembering things big and small.

He could not recall numerous meetings described by Enron directors and executives, in which a variety of concerns were raised about Enron's problems.

Nor could he recall the name of the yacht that he rented for $200,000 to help celebrate his wife's birthday in 2001. It was the Amnesia.

Was he lying, or is this a man who simply does not see the truth, in the manner of a wife who resolutely ignores evidence that convinces others that her husband is having an affair?

That latter explanation may have merit.

Denials of warnings, some contained in documents he cannot recall, may help his defense against charges that he misled investors, but he could just as easily have said he did not believe the warnings.

His view is that all was well until Enron suffered a loss of market confidence brought on by Wall Street Journal articles and by short-sellers.

Does he bear any responsibility for what happened at Enron in late 2001?

"I did everything I could humanly do during this period of time," he testified.

"Did I make mistakes? I'm sure I did, Mr. Hueston."

When pressed, however, he named just one mistake: "approving the hiring of Andrew Fastow and, of course, promoting him to chief financial officer."

Fastow ran partnerships that made him rich while hiding Enron losses from investors. He was a prosecution witness.

Guilty or not, Lay presided over a company whose collapse led to the biggest change in U.S. securities laws since the Great Depression. It is to be hoped that other executives learned more than he did from the experience.