Kenneth Lay has joined the Enron bench. The former chief executive of Enron, who was once mentioned prominently as a possible cabinet member, surrendered to federal authorities in Houston this morning to face an indictment that will be unsealed today.
While the specific charges are unknown, prosecutors, who have been working on the case for nearly three years, need only look to what Lay told reporters when Jeffrey Skilling resigned suddenly from the company in August 2001: "We regret Jeff's decision to resign, as he has been a big part of our success for over 11 years. But, we have the strongest and deepest talent we have ever had in the organization, our business is extremely strong, and our growth prospects have never been better," Lay told reporters.
A few days later, Lay, who was chairman of the board throughout the entire period of Enron's rise, told Business Week: "There are absolutely no problems that had anything to do with Jeff's departure. There are no accounting issues, no trading issues, no reserve issues, no previously unknown problem issues. The company is probably in the strongest and best shape that it has ever been in."
The question for a jury--if the case gets that far, which is unlikely--will be whether Lay possibly believed these statements along with other sunny forecasts he offered just months before Enron would spiral into bankruptcy. When Enron Vice President Sherron Watkins tried to warn him in October 2001 about legal repercussions relating to Enron's accounting and its myriad off-the-books partnerships, he ordered an investigation, but the lawyers failed to question Skilling or Lay. He also told the lawyers not to second guess the accountants.
Yesterday, Lay released a statement repeating his denial of criminal wrongdoing and saying he had done nothing wrong. His suggested defense--made by his wife, his lawyers, and by him in vague statements--has been ignorance. But if Lay didn't know, why did he say he did? If he wanted to know, why did he settle for a whitewash investigation? Some have suggested he could blame Andrew Fastow, the firm's former chief financial officer for all that went wrong. That has been the strategy of Enron defendants--until they plead guilty.
But it has no chance of success. When the federal government issues an indictment for securities fraud--which it does not do often--it almost never loses. That's a general rule, and it should apply in spades to a case where the government has so much at stake.
Last year, the government issued just 162 indictments for securities law violations. Nine of the cases were dismissed for various reasons, but just three defendants were acquitted by a jury, according to the U.S. Office of Court Administration. The vast majority pleaded guilty, as most Enron defendants have already. The rest should follow suit.
Lay would have had a slightly better chance had he been indicted for first-degree murder, where 9% of the accused in federal courts were freed last year. The odds of acquittal on securities charges are just more than 7%, and they likely fade even further for multiple-count indictments such as the one Lay faces.
When he resumed the Enron CEO post in August 2001, Lay noted the company had a "very deep bench." He cited Mark Frevert, chairman of Enron's wholesale trading arm; Fastow; and Richard Causey, the company's chief accounting officer. To date, Fastow has pleaded guilty, and Causey has been indicted, along with 30 others, including Lay. Frevert has not been charged.
===== " How come people always flip and think they're Jesus? Why not Buddha? Particularly in America, where more people resemble Buddha than Jesus. 'Ah'm BUDDHA!' 'You're Bubba!' 'Ah'm Buddha now..All I gotta do is change 3 letters on ma belt...' " - Bill Hicks