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Jury Indicts Lay, Former Head of Enron

The criminal charges, to be unsealed today, relate to the energy trader's financial scandal, the first in a wave of U.S. corporate misconduct.

July 08, 2004|David Streitfeld and Dana Calvo | Special to The Times

HOUSTON — Kenneth L. Lay, who presided over Enron Corp. as it turned into one of the biggest financial scandals of the era, was indicted Wednesday by a federal grand jury here.

Enron's former chairman and chief executive said he would surrender to authorities this morning, capping an investigation into the downfall of the energy giant that began more than two years ago.

The criminal charges against Lay are contained in a sealed indictment and will be made public today when he appears before a magistrate to enter a plea. Civil charges are also expected to be filed today by the Securities and Exchange Commission.

"I have done nothing wrong, and the indictment is not justified," Lay, 62, said in a statement.

Enron's downfall in late 2001 deprived thousands of employees of their jobs and pensions, destroyed tens of billions of dollars in market value and pulled back the curtain on a dizzyingly complex fraud scheme.

Top executives created phantom partnerships that did secret transactions with the company, enriching themselves while bleeding Enron. Other executives exploited the California energy crisis. Recently released tape recordings captured Enron traders gleefully talking about creating false congestion on electricity transmission lines and circumventing price caps.

Enron's collapse was the first in a wave of corporate scandals that grew to encompass telecommunications provider WorldCom Inc., cable giant Adelphia Communications Corp. and lifestyle entrepreneur Martha Stewart. But it remains the most wide-ranging and influential.

The Enron affair sank the company's venerable accounting firm, Arthur Andersen, which was convicted of obstruction for shredding documents. The accountants enabled Enron to hide debt and vastly overstate its earnings through the hidden partnerships.

The Enron meltdown led to a wave of corporate reform and helped put an end to hero worship of executives. Once hailed as a brilliant symbol of innovation, Enron is now regarded as a model of how a corporation can consume itself if left unchecked.

From the start, the case has had political overtones. Lay was close to former President George H.W. Bush and his son, President Bush, who dubbed the executive "Kenny Boy."

Lay lent Enron's corporate jet to the younger Bush eight times during the 2000 campaign, was co-chair of a gala tribute to him and was one of his top campaign contributors. Enron was also a major patron of Bush and the Republican Party.

Immediately after the first TV reports of Lay's indictment, the Democratic National Committee fired off a news release outlining these and other ties between the executive and the president. It was only the first shot in what is likely to be an extended effort.

"The indictment plays right into the Democrats' populist theme that there are 'two Americas' -- that middle-class Americans are being left out of the riches of the last four years because of the greed of the people at top," said Bruce Cain, director of the Institute of Governmental Studies at UC Berkeley.

Reporters asked Bush about the indictment at a campaign appearance in Waterford, Mich., but he walked away without answering, Reuters reported.

Lay has contended that he was detached from Enron at the end, spending much of his time representing the public face of the company rather than actually running it. That job, he has said, fell to others, whom Lay blames for ruining Enron.

Still, Enron wouldn't have existed without Lay. He shepherded Enron from an obscure pipeline company into an energy trading firm that was once ranked the seventh-largest company in the United States.

It seemed at the time a remarkable achievement, especially for a man who had risen from such humble roots. The son of a Baptist minister, Lay grew up in a house in rural Missouri without indoor plumbing. He earned a doctorate in economics, learned the ways of the government during a spell at the Federal Energy Regulatory Commission and began working in the heavily regulated world of natural gas pipelines.

As the industry deregulated, Lay saw opportunities -- and took them.

He was fatherly, charming. "Just about everyone who met Lay for the first time liked him, from world leaders to the ministers from Houston's poorest neighborhoods," Enron whistle-blower Sherron S. Watkins wrote in a memoir. "The crowds parted for him with something like awe, and he, in return, shook every hand and knew every name, and business could proceed with a feeling of the very best intentions."

By all accounts, Lay didn't like hearing bad news or saying no to people, something the executives he hired realized and took advantage of. While Lay tried to float above the fray, the managers battled with each other.

After Enron's December 2001 bankruptcy filing, public outcry brought a spate of congressional hearings and government investigations into the cause of the collapse and the company's role in the California energy crisis of 2000-01.

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