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HOUSTON - Federal prosecutors unveiled charges Thursday that tried to place Enron founder and former chairman Kenneth Lay at the helm of a conspiracy to manipulate the company's books in the frenzied weeks before its scandalous collapse. He returned the punch with an aggressive yet measured public declaration of innocence.
"I continue to grieve, as does my family, over the loss of the company, my failure to be able to save it," Lay said in the same hotel meeting room where Enron held its last shareholder meeting months before the company crashed. "But failure does not equate to a crime."
Lay was indicted two-and-a-half years into a methodical investigation that has produced charges against some of his once most highly trusted lieutenants. Prosecutors have aggressively pursued the former celebrity CEO, friend and contributor to President Bush, and this week's action made Lay the 30th and highest-profile individual charged.
Prosecutors contend Lay, his hand-picked protege and former Enron CEO Jeffrey Skilling, and the company's former top accountant Richard Causey were among principal operators of a wide-ranging scheme to deceive the public, shareholders, government regulators and others.
A federal indictment unsealed Thursday alleged that Skilling spearheaded the scheme until he abruptly quit in mid-August 2001, less than four months before Enron imploded. Lay resumed as CEO upon Skilling's departure and "took over leadership of the conspiracy," the indictment said.
In 11 counts of conspiracy, wire fraud, securities fraud, bank fraud and false statements to banks, prosecutors allege Lay was more than a CEO blithely unaware of wrongdoing by his minions. The indictment alleged Lay intensified his oversight of Enron's day-to-day operations and "took control" of a conspiracy to keep Enron's ever-growing financial crises hidden in the bowels of the company.
The charges allege Lay painted a rosy picture of Enron to employees, analysts and investors when he had learned in meetings that the company faced massive losses on shoddy assets and money-losing business units.
"Rather than come clean and tell the unvarnished truth about Enron, Lay chose to conceal and distort and mislead at the expense of shareholders and employees, people to whom he owed a duty of complete candor," said Andrew Weissmann, head of the Justice Department's Enron Task Force.
Lay asserted that he took responsibility for Enron's collapse as chairman, but he said "that does not mean I know everything that went on at Enron."
The comments from Lay and Weissmann came after Lay pleaded innocent to the charges.
"Not guilty, your honor," Lay, speaking loudly and clearly, told U.S. Magistrate Mary Milloy at a court hearing hours after he surrendered to the FBI and was escorted to the federal courthouse in handcuffs.
Prosecutors allege Lay knew Enron was preparing to announce massive third-quarter losses and a $1.2 billion writedown in shareholder equity, yet in a Sept. 26, 2001, Internet chat told Enron employees he had strongly encouraged management to buy Enron stock.
The indictment alleges Lay also knew Enron was facing a $700 million writedown in its water business, Azurix, but didn't disclose detailed information. In addition, it alleges Lay knew Enron had reorganized its energy services unit to hide hundreds of millions of dollars in losses.
"We're not trying to conceal anything," Lay told analysts on Oct. 23, 2001, according to the indictment.
He also told employees that same day: "Our liquidity is fine; as a matter of fact, it is better than fine, it is strong."
Prosecutors allege Lay knew Enron had been forced to offer its pipelines as collateral to get a $1 billion bank loan to maintain liquidity.
The indictment added Lay to a case already pending against Skilling and Causey, both of whom have pleaded innocent. Lay was released on $500,000 bond - much less than Skilling's $5 million and Causey's $3 million bonds. Prosecutors had sought a $6 million bond, saying Lay was a flight risk. Milloy also rejected a request from Lay's lawyers that he be released on his own recognizance.
Lay's lawyer, Michael Ramsey, said he would immediately seek to have Lay tried separately from Skilling and Causey and go in front of a jury as early as September. Ramsey called the charges against Lay a "tag-on" to the more expansive allegations against Skilling and Causey, since the Lay allegations target August through December 2001 while the Skilling and Causey allegations are spread over several years.
Lay and Ramsey also cast blame for Enron's collapse on former chief financial officer Andrew Fastow, who pleaded guilty to two conspiracy counts in January and is the government's most high-profile cooperating witness.
If convicted on all counts, Lay could receive up to 175 years in prison plus fines possibly totaling more than $5.7 million.
-Associated Press Writer Juan A. Lozano contributed to this report.
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