Kenneth Lay invoked the 5th Amendment before Congress on Tuesday, and senators retaliated by liberally invoking the 1st.
One senator likened the former Enron chief executive to Charles Ponzi, who invented a confidence scheme that bears his name, and others said Lay should have known–even if he claims he did not–about the financial cancer eating away his firm.
After expressing “profound sadness” for the firm he founded, its employees, retirees and stockholders, Lay exercised his constitutional right against self-incrimination before a Senate Commerce Committee panel probing Enron’s scandal-ridden implosion.
He told skeptical senators he wanted to answer their questions but, after “agonizing consideration,” decided to take the advice of his lawyer not to testify with criminal allegations flying through Congress.
“I am deeply troubled about asserting these rights because it may be perceived by some that I have something to hide,” he said.
Senators investigating the collapse of the energy trading company indicated their belief that he had plenty to hide about secret partnerships Enron used to make its financial condition look better than it was.
“I’ve concluded you’re the most accomplished confidence man since Charles Ponzi,” said Sen. Peter Fitzgerald (R-Ill.). “I’d say you were a carnival barker, except that might not be fair to carnival barkers. A carny will at least tell you up front he’s running a shell game.”
Like many other senators, Sen. Olympia Snowe (R-Maine) said Lay should have known about financial irregularities at Enron partnerships that eventually drove the company to file for bankruptcy, cost thousands of employees their life savings and triggered criminal investigations.
Using President Bush’s nickname for one of his campaign’s biggest contributors, Sen. Ernest Hollings (D-S.C.), the committee chairman, said Lay was a prime example of “Kenny-boy cash-and-carry government.”
“It’s deplorable that you didn’t know what was going on, but if you did know what was going on, how did you think you could get away with it?” asked Sen. John Ensign (R-Nev.).
Former employees attend
Among those in the crowded Senate hearing room were former Enron employees who felt that Lay and Enron had harmed them. Lay arrived on time for the hearing and sat silently as senators verbally pummeled him. Then he took the witness stand, and Hollings swore him in.
Lay became the fifth Enron official to invoke his 5th Amendment protections before congressional panels. In his statement, he noted the Supreme Court wrote last year that “one of the 5th Amendment’s basic functions is to protect innocent men.”
Although Lay has said he didn’t know the details of the partnerships run by Enron executives, a special committee of the board of directors reported that in June 2000, Lay signed an approval sheet for a controversial sale by a partnership known as LJM2.
“Our investigation showed that Mr. Lay had signed off on a deal-approval sheet” for LJM2, said William Powers, the University of Texas Law School dean who directed a board of directors probe into Enron’s finances. Powers appeared before the committee Tuesday.
In a surprising turn, Powers disclosed that his committee had destroyed the notes of a two-hour interview with Lay about his role in the collapse but had preserved a 17-page summary of the interview. Powers said it is standard operating procedure for corporate investigative committees to dispose of such notes, but the disclosure raised the eyebrows of senators concerned about document shredding by Enron and the Andersen accounting firm.
More testimony about Lay’s role in the company’s collapse is scheduled for Thursday, when Sherron Watkins, an Enron official who blew the whistle on the irregularities in a memo to Lay, will testify before a House Energy and Commerce Committee investigations panel.
Watkins’ memo last August said she feared the company was about to implode in a series of accounting scandals, blamed on hundreds of partnerships that investigators say Enron set up to hide its debt and inflate profits. She cited conflicts of interest by the man in charge of many partnerships, Chief Financial Officer Andrew Fastow.
But little happened as a result of Watkins’ memo. Lay turned it over to a Houston law firm that often does work for Enron, Vinson & Elkins, which reported later that the transactions in the partnerships had been cleared by management and accountants and that any conflicts of interest were being adequately monitored.
Warning ignored, senators say
Fitzgerald and Snowe brought up the Watkins memo, saying that Lay essentially shunted aside her recommendations just before the company was forced to declare huge losses related to transactions within the partnerships.
Snowe said Lay should have known, if he did not know already, that his company was financially unsound when a German company, Veba, backed out of a merger with Enron in 1999, concluding the Houston energy giant had inflated its earnings by hiding its debt.
“Did that not send up a red flag?” she asked Lay.
Another former Enron chief executive, Jeffrey Skilling, who resigned from the company in August, testified before a House investigations committee last week and encountered enormous skepticism when he said he did not know of the dire state of the company’s finances.
Skilling denied any major role in setting up or monitoring the transactions by the partnerships, but members of Congress have challenged his story. Rep. John Dingell (D-Mich.) released a document Monday showing that Skilling spoke at an Oct. 26, 2000, meeting of one of the partnerships, LJM Investments.
Powers testified Tuesday that his committee obtained “strong evidence” that Skilling was supposed to monitor the partnerships to ensure Enron’s interests were being protected.
In a related matter, the Labor Department announced Tuesday that control of Enron’s retirement plans is being transferred from company executives to an independent expert who will be appointed by the department.
The legal representative, called a fiduciary, will “aggressively protect workers’ interests during corporate bankruptcy proceedings and maximize the likelihood of recovering funds for the plans,” Labor Secretary Elaine Chao said.
