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Prosecutors seek ken lay indictment { June 20 2004 } Original Source Link: (May no longer be active)
http://www.chron.com/cs/CDA/ssistory.mpl/front/2635540http://www.chron.com/cs/CDA/ssistory.mpl/front/2635540
June 20, 2004, 4:54PM
Prosecutors seeking Lay indictment
By MARY FLOOD
Copyright 2004 Houston Chronicle
Federal prosecutors plan to ask a grand jury to indict Ken Lay on charges relating to the last few months he was at the helm of Enron as the company spiralled into its stunning 2001 collapse.
The indictments are expected within two weeks, according to lawyers close to the case.
For the past 2 1/2 years, the Justice Department's Enron Task Force has been investigating Lay -- the company's former chairman -- and recently the probe has picked up steam.
Over the past few weeks, witnesses about Lay have appeared before the Enron grand jury in increasing numbers. At the same time, prosecutors have been separately interviewing other witnesses and shoring up details about Lay.
Government lawyers have been playing their cards close to their vests, and lawyers for witnesses acknowledge that prosecutors could postpone the final presentation of the case.
Prosecutors are barred from speaking publicly about grand jury business, and Enron Task Force Director Andrew Weissmann would not comment for this story.
But the Houston-based grand jury has already heard five days of testimony this month, all focused on Lay. Enron Task Force prosecutors John Hemann and John Hueston, who are investigating Lay, have taken in witness after witness, including Lay's Chief of Staff Steven Kean and ex-Enron General Counsel Jim Derrick.
Topics that prosecutors have been quizzing witnesses about include:
·Lay's receipt of three memos or e-mails warning of financial trouble and fraud at the company within weeks of Jeff Skilling's abrupt August 2001 departure as CEO.
·His public statements to investors and analysts.
·Lay's attempt to find an alternative to having to substantially write down the "goodwill" or excess price paid for assets.
·His trades of company stock for millions of dollars in company cash in those last months.
Lay's Houston-based lawyer, Mike Ramsey, said Friday that while he knows there is an active investigation into his client, he will be surprised if there's an indictment.
"Indict him for what?" Ramsey said Friday. "I don't know what they could charge him with."
Lay's lawyers have noted Lay has a good defense to insider trading charges because he held on to much of his Enron stock even as the company went bankrupt. And they said most of the millions in cash he borrowed from the company and paid back with stock was used to pay off other debt created by the fall of the price of Enron stock.
In classic prosecutorial fashion, the Enron Task Force has charged underlings and worked their way up the employee food chain. Twenty-one former Enron employees have been charged along with eight other people from banks, financial firms or accounting firms that did business with Enron.
The most recent indictment was against Lay's second in command -- ex-CEO Jeff Skilling, who pleaded not guilty to 35 felony charges in February.
Though it's possible the government has no "smoking gun" witness against Lay, prosecutors will likely use a plethora of witnesses to accuse the 62-year-old.
Among the witnesses the government might use against Lay are the company's ex-Chief Financial Officer Andrew Fastow, who pleaded guilty to two charges and agreed to cooperate with prosecutors; the company's former treasurer Ben Glisan, serving a five-year prison term but who testified before the grand jury in February and March; and Paula Rieker, a former executive in investor relations who has pleaded guilty. She traveled to New York with Lay in October 2001, a trip when the Enron entourage is alleged to have made false statements to analysts about Enron's troubles.
Prosecutors now have the cooperation of 10 people who have pleaded guilty, some of whom have been re-interviewed in recent weeks, focusing on Lay and others, including ex-Chief Accounting Officer Rick Causey.
Lay is likely to be charged with some type of fraud, possibly similar to the charges against Skilling and Causey. They are charged with insider trading, securities fraud, wire fraud, conspiracy and lying on Enron financial statements.
Several of the lawyers representing witnesses in the case speculate that rather than indict Lay separately, prosecutors will add Lay to the case against Skilling and Causey, meaning the three would be tried together.
This could be done for two main reasons: The government likes the efficiency of U.S. District Judge Sim Lake, who is overseeing the existing case, and it might pressure Causey to consider a plea bargain. But Causey has pleaded not guilty to 31 charges and has shown no signs of interest in a plea bargain.
Prosecutors seem to be focusing on Lay's behavior from August 2001 to the company's bankruptcy in December 2001 and seem to be especially interested in what Lay saw, heard or said regarding events including:
·Aug. 13, 2001 -- Lay's internal credit line, where he could trade Enron stock for company cash, was expanded from a $4 million cap to a $7.5 million cap. The evidence of this largesse is a handwritten note on meeting minutes saying : "$7.5 million per Dr. LeMaistre." In January 2003, Dr. Charles LeMaistre, the retired head of University of Texas M.D. Anderson Cancer Center who ran the board's compensation committee, appeared before the Enron grand jury.
In August, September and October of 2001, Lay borrowed more than $15 million through this revolving credit line, paying it back with stock and leaving a debt of some $7 million when the company declared bankruptcy.
·Aug. 14 -- Skilling abruptly resigned, leaving Lay as both CEO and board chairman and unable to claim he was letting someone else run the company. Lay told people Skilling left for personal reasons but if he knew otherwise, even those representations might work against him.
·Aug. 15 -- Vice President Sherron Watkins sent her now-famous memo to Lay warning of impending accounting scandal and citing several problematic deals including the four accounting partnerships, called the Raptors; and Fastow's involvement in side deals.
Lay had the Vinson & Elkins law firm do a review, though Watkins suggested that firm has a conflict and outside accountants should take a look.
· Aug. 17 -- Lay's Chief of Staff Steven Kean e-mailed Lay warning about problems with accounting, overhyping of stock and a mercenary culture at Enron. E-mail was almost schizophrenic, simultaneously lauding the company while listing severe problems.
·Last week of August -- Recently laid-off employee Margaret Ceconi sent e-mail addressed to Lay and the board secretary warning of fraud in hiding Enron Energy Services losses of at least $500 million by moving them to another sector of Enron to make EES appear profitable.
·In this last quarter, Lay sought to find ways around new accounting rules that would require the company to acknowledge debt from the "goodwill" payments for assets over their market value
Prosecutors are interested in whether Lay specifically sought to improperly lessen the financial hit from Enron's Azurix asset purchases, including its overpriced acquisition of Wessex Water in the United Kingdom.
Prosecutors will also want evidence of the positive statements Lay made to employees, analysts, and investors from August until the bankruptcy.
In September 2001, for example, Lay told Enron employees that the stock is "incredibly cheap" and said "talk up the stock and talk positively about Enron to your family and friends. ... There have been all kinds of reckless and unfounded rumors about Enron and the financial condition of Enron."
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