June 21, 2004

Prosecutors Seeking Lay Indictment

Drip, drip, drip...Abu Ghraib, Chalabi, the WMD lies,
Halliburton, Medifraud, Plame, the prostitution of the
EPA, Enron and the phoney "Calfornia energy crisis,"
and Enron itself (i.e. "Kenny Boy" Lay -- confidant
and financier of the increasingly unhinged and
incredibly shrinking _resident)...drip, drip, drip...

Mary Flood, Houston Chronicle: Federal prosecutors
plan to ask a grand jury to indict Ken Lay on charges
relating to the last few months he was at the helm of
Enron as the company spiraled into its stunning 2001
The indictments are expected within two weeks,
according to lawyers close to the case...

Free Martha Stewart, Prosecute the Real Corporate
Criminals, Show Up for Democracy in 2004: Defeat Bush


Prosecutors Seeking Lay Indictment
By Mary Flood
Houston Chronicle

Saturday 19 June 2004

Federal prosecutors plan to ask a grand jury to
indict Ken Lay on charges relating to the last few
months he was at the helm of Enron as the company
spiraled into its stunning 2001 collapse.

The indictments are expected within two weeks,
according to lawyers close to the case.

For the past 2 1/2 years, the Justice Department's
Enron Task Force has been investigating Lay - the
company's former chairman - and recently the probe has
picked up steam.

Over the past few weeks, witnesses about Lay have
appeared before the Enron grand jury in increasing
numbers. At the same time, prosecutors have been
separately interviewing other witnesses and shoring up
details about Lay.

Government lawyers have been playing their cards
close to their vests, and lawyers for witnesses
acknowledge that prosecutors could postpone the final
presentation of the case.

Prosecutors are barred from speaking publicly
about grand jury business, and Enron Task Force
Director Andrew Weissmann would not comment for this

But the Houston-based grand jury has already heard
five days of testimony this month, all focused on Lay.
Enron Task Force prosecutors John Hemann and John
Hueston, who are investigating Lay, have taken in
witness after witness, including Lay's Chief of Staff
Steven Kean and ex-Enron General Counsel Jim Derrick.

Topics that prosecutors have been quizzing
witnesses about include:

Lay's receipt of three memos or e-mails warning of
financial trouble and fraud at the company within
weeks of Jeff Skilling's abrupt August 2001 departure
as CEO.
His public statements to investors and analysts.
Lay's attempt to find an alternative to having to
substantially write down the "goodwill" or excess
price paid for assets.
His trades of company stock for millions of dollars in
company cash in those last months.
Lay's Houston-based lawyer, Mike Ramsey, said
Friday that while he knows there is an active
investigation into his client, he will be surprised if
there's an indictment.

"Indict him for what?" Ramsey said Friday. "I
don't know what they could charge him with."

Lay's lawyers have noted Lay has a good defense to
insider trading charges because he held on to much of
his Enron stock even as the company went bankrupt. And
they said most of the millions in cash he borrowed
from the company and paid back with stock was used to
pay off other debt created by the fall of the price of
Enron stock.

In classic prosecutorial fashion, the Enron Task
Force has charged underlings and worked their way up
the employee food chain. Twenty-one former Enron
employees have been charged along with eight other
people from banks, financial firms or accounting firms
that did business with Enron.

The most recent indictment was against Lay's
second in command - ex-CEO Jeff Skilling, who pleaded
not guilty to 35 felony charges in February.

Though it's possible the government has no
"smoking gun" witness against Lay, prosecutors will
likely use a plethora of witnesses to accuse the

Among the witnesses the government might use
against Lay are the company's ex-Chief Financial
Officer Andrew Fastow, who pleaded guilty to two
charges and agreed to cooperate with prosecutors; the
company's former treasurer Ben Glisan, serving a
five-year prison term but who testified before the
grand jury in February and March; and Paula Rieker, a
former executive in investor relations who has pleaded
guilty. She traveled to New York with Lay in October
2001, a trip when the Enron entourage is alleged to
have made false statements to analysts about Enron's

Prosecutors now have the cooperation of 10 people
who have pleaded guilty, some of whom have been
re-interviewed in recent weeks, focusing on Lay and
others, including ex-Chief Accounting Officer Rick

Lay is likely to be charged with some type of
fraud, possibly similar to the charges against
Skilling and Causey. They are charged with insider
trading, securities fraud, wire fraud, conspiracy and
lying on Enron financial statements.

Several of the lawyers representing witnesses in
the case speculate that rather than indict Lay
separately, prosecutors will add Lay to the case
against Skilling and Causey, meaning the three would
be tried together.

This could be done for two main reasons: The
government likes the efficiency of U.S. District Judge
Sim Lake, who is overseeing the existing case, and it
might pressure Causey to consider a plea bargain. But
Causey has pleaded not guilty to 31 charges and has
shown no signs of interest in a plea bargain.

Prosecutors seem to be focusing on Lay's behavior
from August 2001 to the company's bankruptcy in
December 2001 and seem to be especially interested in
what Lay saw, heard or said regarding events

Aug. 13, 2001 - Lay's internal credit line, where
he could trade Enron stock for company cash, was
expanded from a $4 million cap to a $7.5 million cap.
The evidence of this largesse is a handwritten note on
meeting minutes saying : "$7.5 million per Dr.
LeMaistre." In January 2003, Dr. Charles LeMaistre,
the retired head of University of Texas M.D. Anderson
Cancer Center who ran the board's compensation
committee, appeared before the Enron grand jury.

In August, September and October of 2001, Lay
borrowed more than $15 million through this revolving
credit line, paying it back with stock and leaving a
debt of some $7 million when the company declared

Aug. 14 - Skilling abruptly resigned, leaving Lay
as both CEO and board chairman and unable to claim he
was letting someone else run the company. Lay told
people Skilling left for personal reasons but if he
knew otherwise, even those representations might work
against him.

Aug. 15 - Vice President Sherron Watkins sent her
now-famous memo to Lay warning of impending accounting
scandal and citing several problematic deals including
the four accounting partnerships, called the Raptors;
and Fastow's involvement in side deals.

Lay had the Vinson & Elkins law firm do a review,
though Watkins suggested that firm has a conflict and
outside accountants should take a look.

Aug. 17 - Lay's Chief of Staff Steven Kean
e-mailed Lay warning about problems with accounting,
overhyping of stock and a mercenary culture at Enron.
E-mail was almost schizophrenic, simultaneously
lauding the company while listing severe problems.

Last week of August - Recently laid-off employee
Margaret Ceconi sent e-mail addressed to Lay and the
board secretary warning of fraud in hiding Enron
Energy Services losses of at least $500 million by
moving them to another sector of Enron to make EES
appear profitable.

In this last quarter, Lay sought to find ways
around new accounting rules that would require the
company to acknowledge debt from the "goodwill"
payments for assets over their market value

Prosecutors are interested in whether Lay
specifically sought to improperly lessen the financial
hit from Enron's Azurix asset purchases, including its
overpriced acquisition of Wessex Water in the United

Prosecutors will also want evidence of the
positive statements Lay made to employees, analysts,
and investors from August until the bankruptcy.

In September 2001, for example, Lay told Enron
employees that the stock is "incredibly cheap" and
said "talk up the stock and talk positively about
Enron to your family and friends. ... There have been
all kinds of reckless and unfounded rumors about Enron
and the financial condition of Enron.


Posted by richard at June 21, 2004 07:00 AM