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Lay Says He Did Not Reveal Some Data

The former chairman concedes Enron did not disclose that a key unit would miss sales targets.

April 28, 2006|From Reuters and the Associated Press

HOUSTON — A federal prosecutor accused former Enron Corp. Chairman Kenneth L. Lay on Thursday of withholding key financial data from analysts and hiding his sales of millions of dollars of company stock in the months before Enron collapsed in December 2001.

Prosecutor John C. Hueston pressed Lay about statements he made to analysts about the energy company's retail unit less than two months before the company filed for bankruptcy protection.

Hueston said Enron had long told investors that the company viewed its total contract value for deals signed by the business, Enron Energy Services, as the best guide to its health. That figure was rising steadily and was projected by Enron to reach $30 billion by the end of 2006.

But by the end of September 2001, it was clear that Enron would not reach that number, so it decided not to disclose total contract value to analysts, even as Lay continued to describe the business in glowing terms.

"At no point in time did you tell analysts that Enron Energy Services was on target to miss its target of $30 billion at this time?" Hueston asked.

"I think that's correct," Lay conceded, adding that the company no longer viewed that contract sales figure as the best measure of the business.

Lay, 64, and former Chief Executive Jeffrey K. Skilling, 52, are charged with hiding the state of Enron's finances from investors as the company hurtled toward bankruptcy. Both men have said that Enron was healthy before critical news stories, predatory investors and broader market turmoil brought it to its knees.

Lay's demeanor was more subdued than when Hueston questioned him late Wednesday about attempts by Lay to contact witnesses in his trial.

On Thursday, Hueston also grilled Lay about $70 million in Enron stock the executive sold in 2001. Lay said he was required to disclose those sales only annually rather than monthly because the shares were sold back to Enron to pay down a line of credit he had with the company.

Senior executives at publicly listed companies are required to report personal stock sales monthly to the Securities and Exchange Commission, and investors closely watch those sales for signals about insiders' view of a stock's prospects.

During 2001, Lay drew down his $7.5-million credit line with Enron and paid it back with Enron shares, reaping $70 million.

Lay has not been charged with illegally selling the stock. Prosecutors have highlighted the sales to raise questions about Lay's character and his knowledge of Enron's prospects.

The prosecutor also took aim at the characterization by Lay's lawyer of the investors who sold Enron stock short, betting on its decline, as "vultures" who had conspired to bring Enron down.

"Were you aware your own son Mark was selling Enron short?" Hueston asked.

"I guess I should ask him now," Lay responded.

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