Enron; At 11th Hour, Lay Says He Won't Testify

February 4, 2002
Enron; At 11th Hour, Lay Says He Won't Testify

WASHINGTON, Feb. 3 ‹ After a weekend of sharp criticism for his stewardship of Enron (news/quote), Kenneth L. Lay, the company's former chief executive, abruptly reversed course this evening and told Congress he would refuse to testify before two committees preparing to hear his testimony, starting on Monday.

Earl J. Silbert, the lawyer for Mr. Lay, said he had decided to withdraw because "judgments have been reached and the tenor of the hearings will be prosecutorial." But Congressional aides said that they had never expected that Mr. Lay would appear and that he was looking for a convenient excuse to miss the hearings.

His appearance on Monday morning before a Senate committee and the next day before a House committee had been eagerly awaited. He had repeatedly declined to comment publicly. On Saturday evening, however, a special committee of Enron's board provided new details of the self-dealing and financial sleight-of- hand that had substantially overstated earnings.

The report characterized Mr. Lay as responsible in an overall sense for Enron's problems because he was the "captain of the ship" who "had the ultimate responsibility for taking reasonable steps to ensure that the officers reporting to him performed their oversight duties properly." But he is also described as largely oblivious to a wide range of inside-dealing and corporate malfeasance.

Some lawmakers raised questions about that characterization, and, in appearances on talk programs today, suggested, without directly pointing to Mr. Lay, that crimes might have been committed at Enron.

"It is hard to imagine how the C.E.O. of a company of this size that was engaged in moving hundreds and hundreds of millions of dollars of obligation off its books, enriching members of its hierarchy to the tunes of tens of millions of dollars, could be so oblivious," Representative James C. Greenwood, Republican of Pennsylvania, said on "Late Edition" on CNN.

Mr. Lay has refused to respond to questions about the collapse. His wife, Linda, and their children, however, appeared on television last week, maintaining that he was largely ignorant of the events that led to Enron's collapse and that the family was struggling to avoid bankruptcy.

For days, Mr. Lay's lawyers had promised Congressional investigators that he would testify, despite the suggestions by many defense lawyers in Washington that it would be unwise for him to testify under oath while he was a subject of a sprawling criminal inquiry into securities fraud and illegal insider trading.

Today, Mr. Silbert said that Mr. Lay had been preparing as late as this morning to testify but reversed course after lawmakers on the morning talk programs suggested that Enron had been rife with fraud. In letters to the two committee chairmen this evening, Mr. Silbert recounted some of the criticism, including a reference to an article in The New York Times (news/quote) today that said "Mr. Lay will face a panel eager to pulverize him."

"I have instructed Mr. Lay to withdraw from his prior acceptance of your invitation," Mr. Silbert added. "He cannot be expected to participate in a proceeding in which conclusions have been reached."

"Many allegations have been publicized in the news media accusing Mr. Lay and others of wrongful, even criminal conduct," Mr. Silbert wrote in his letters to Senator Ernest F. Hollings, Democrat of South Carolina, and Representative Michael G. Oxley, Republican of Ohio, whose committees were to hear testimony from him. "Some have construed his silence as acquiescence. They are wrong. Mr. Lay firmly rejects any allegations that he engaged in wrongful or criminal conduct."

But Congressional aides said Mr. Lay had been looking for an excuse to avoid testifying.

"In all honesty, we never expected him to appear," said Ken Johnson, an aide to Representative Billy Tauzin, the Louisiana Republican who leads the House Energy and Commerce Committee. Mr. Tauzin said earlier in the day that he expected, based on what had been uncovered so far, that "maybe somebody ought to go to the pokey for this."

Mr. Johnson said: "I can only tell you that if Mr. Lay spurns our committee, Mr. Lay will be subpoenaed. And if he ignores the subpoena, we'll pursue all our options, including the possibility of a contempt of Congress" citation.

Senator Byron L. Dorgan, Democrat of North Dakota and head of one of the subcommittees investigating Enron, said that he had been informed on Friday and Saturday that Mr. Lay would testify. He said he believed that the report was a "pretty tough indictment of what was happening at that corporation" and had probably persuaded Mr. Lay to change his mind.

Democratic and Republican lawmakers praised the company's internal report today, although Congressional investigators cautioned that it failed to resolve crucial issues about the roles senior executives played in establishing the questionable partnerships at the heart of the scandal.

The members of Congress said that while the report presented strong evidence of corporate crimes, most notably securities fraud, it did not reduce the need for a significant overhaul of the accounting and corporate governance rules.

"The report presents a pretty straightforward case of fraud," said Senator Jon S. Corzine, Democrat of New Jersey, and a former senior executive on Wall Street at Goldman, Sachs. "If the facts of it are accurate, it's quite despicable and damning."

"There is still no less of a need for reform of 401(k) rules and corporate governance rules," he added.

Mr. Tauzin said the report closely tracked what was being uncovered by Congressional investigators.

"I think we're finding what may clearly end up being securities fraud," Mr. Tauzin said on the NBC News program "Meet the Press." Mr. Tauzin said he had been told that Andrew S. Fastow, Enron's former chief financial officer and the engineer of many of the partnerships, would refuse to testify later this week and invoke his Fifth Amendment right against self-incrimination. He added that he had also been told that Jeffrey K. Skilling, the former chief executive, would testify later this week and that he had refused to sign the approval sheets for some of the partnerships after being warned they were questionable.

"What does that say about his knowledge about whether these deals were honest or corrupt?" Mr. Tauzin said.

Bruce Hiler, a lawyer for Mr. Skilling, said his client would testify before Congress on Thursday and not exercise his Fifth Amendment right. Mr. Hiler declined to comment on Mr. Tauzin's remarks.

(In accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes.)


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