Skip to comments.Enron's Lay grilled on spending amid collapse
Posted on 05/01/2006 4:36:13 PM PDT by NormsRevenge
HOUSTON (Reuters) - Former Enron CEO Ken Lay sold $70 million in Enron shares back to the company to pay for personal luxuries such as renting a yacht for a birthday party, even as the company headed toward bankruptcy, prosecutors said on Monday.
Lay, on trial for fraud and conspiracy along with former Enron CEO Jeffrey Skilling, has said most of the stock sales were made to pay off his millions of dollars in debts.
Under cross examination by prosecutor John Hueston, Lay admitted he and wife, Linda, lived the good life and had trouble giving it up, despite Enron's mounting financial troubles in 2001.
"We had realized the American Dream and were living a very expensive lifestyle," he said as jurors took notes and appeared to listen intently.
"It's the type of lifestyle that's difficult to turn on and off like a spigot," said Lay, the son of a Baptist preacher who grew up in poverty in Missouri.
Prosecutors argued Lay sold the $70 million in shares back to Enron to avoid publicly disclosing the sales immediately to U.S. regulators. Lay wanted to keep the sales quiet, they said, to avoid drawing scrutiny from investors about possible reasons for such large transactions.
Prosecutors showed credit card statements with thousands of dollars in charges for brief hotel stays in the French Riviera and a Utah ski resort, and a bill for almost $200,000 to rent a yacht for his wife's birthday.
In January 2001, Lay said he rented the ship "Amnesia" for nearly $200,000 so that he and friends could celebrate his wife's birthday.
"I thought it important that we celebrate it in a very significant way," he said.
In May, they spent $12,000 for a vacation to celebrate Lay's own birthday.
"So you can see celebrating my birthday is cheaper than celebrating my wife's," Lay said with a grin.
WERE SALES A LAST RESORT?
Hueston grilled Lay on his sales of Enron stock in 2001 even as Lay was touting the company's prospects and urging employees to buy shares.
Lay has said the declining value of the stock forced him to sell shares he had put up as collateral for $100 million in loans he owed to banks.
Hueston questioned Lay's assertion that he only sold the shares as a last resort, displaying documents that showed Lay still had several million dollars in available credit lines to repay requirements under his loans.
The once-high flying executive who was close friends with the Bushes and nicknamed "Kenny Boy" by President George W. Bush, also had extensive real estate holdings, including three homes in the ski resort Aspen, Colorado.
Earlier testimony showed that Lay was paid $220 million in his last three years at Enron, and even got $1 million loan from the company in the week before the company's bankruptcy.
Lay, 64, is on trial in federal court with Skilling, 52, on charges they hid the deteriorating financial health of the energy giant they had built into the seventh-largest U.S. company.
Enron imploded in a wave of accounting scandals after its use of off-balance sheet instruments to hide billions of debt while inflating profits came to light. Its bankruptcy filing in December 2001 was the largest ever at the time.
Both Lay and Skilling have denied any wrongdoing, and both face decades in prison if convicted.
The folksy, affable demeanor that won Lay admiration among his employees at Enron has largely vanished during his often angry testimony on the witness stand that began a week ago.
He and Hueston have sparred regularly, with Lay accusing the prosecutor of twisting facts in a bid to cast him in an unflattering light to win a conviction.
The two men clashed again on Monday morning as Hueston accused Lay of ignoring warnings from several employees that the company had used bogus accounting to bolster its finances -- charges Lay said were driven by hindsight and facts that have emerged only since Enron's collapse.
"The corpse is on the gurney now, Mr. Hueston, and you're carving it up any way that you want to carve it up," Lay said.
Lay has not been charged with illegally selling Enron stock, but he will face a separate trial later this month for charges he misused bank loans to buy Enron stock.
Lay's cross examination by prosecutors wrapped up Monday afternoon, and Lay is expected to finish answering questions from his own lawyer on Tuesday.
Separately, the retrial of two former finance executives from Enron Broadband Services, Kevin Howard and Michael Krautz, is scheduled to begin on Tuesday in the courtroom next door to the Lay and Skilling trial.
The two had been tried alongside three other EBS executives last year, but that ended in a mistrial. Prosecutors have narrowed the charges, and Howard and Krautz will face five counts of conspiracy, fraud and falsifying books and records.
Former Enron Chairman Ken Lay and wife Linda arrive at Federal court in Houston, May 1, 2006. (Richard Carson/Reuters)
Enron was a mess - but the media drove its collapse for one reason:
The Media thought it would hurt President Bush.
How much media hype did we hear (by comparison) of the collapse of WorldCom? You can do a search to see the Enron stories dwarf anything else.
WorldCom News Stories = 532
Enron News Stories = 7,817
I think it is as much "Big Oil" and "Texas" as it is GWB - but the Coasties assume they are equal.
If they went messing in WorldCom's nest, they might run into friends of theirs or their bosses. Not so with Enron, as we are down in our own little world here. No reason to come to Houston unless you're coming here on purpose.
KennyBoy was as much "friends" with BillyJeff as Dubya - not *very very* at all. Of course, I'm not so sure they even meant Dubya when they said "the Bushes" - because there was more crossover with Neil here than GW.