A federal prosecutor accused former Enron Corp. chief Kenneth Lay on Thursday of withholding key financial data from analysts and hiding his sales of millions of dollars of company stock in the months before Enron collapsed.
The prosecutor, John Hueston, pressed the former Enron chairman and chief executive about his statements made to analysts about the energy company's retail unit less than two months before the company filed for the then-largest ever U.S. bankruptcy.
Hueston said Enron had long told investors that the company viewed its total contract value for deals signed by the business, Enron Energy Services, as the best guide to its health. That figure was rising steadily and was publicly projected by Enron to reach $30 billion by the end of 2006.
But by the end of September 2001, it was clear that Enron would not reach that number, so it decided not to disclose total contract value to analysts, even as Lay continued to describe the business in glowing terms.
At no point in time did you tell analysts that Enron Energy Services was on target to miss its target of $30 billion at this time? Hueston asked.
I think that's correct, Lay conceded.
Lay, 64, and former CEO Jeffrey Skilling are charged with hiding the dismal state of Enron's finances from investors even as the company hurtled toward bankruptcy.
Lay, who ran Enron for 15 years from its inception in 1985, faces six charges of conspiracy and fraud linked to the company's final four months, when he stepped back into the CEO role that Skilling had abandoned suddenly.
Skilling, 52, is charged with 28 counts of fraud, conspiracy and insider trading. He testified for nearly eight days before leaving the witness stand last week.
Both men have said Enron, which as its peak was the seventh-largest U.S. company, was healthy before a combination of critical news stories, predatory investors and broader market turmoil brought it to its knees.
Hueston also grilled Lay about $70 million in Enron stock the executive sold in 2001. Lay said he was only required to disclose those sales annually rather than monthly since the shares were sold back to Enron to pay down a line of credit he had with the company.
Senior executives at publicly listed companies are required to report personal stock sales monthly to the U.S. Securities and Exchange Commission, and investors closely watch those sales for signals about insiders' view of a stock's prospects.
During 2001, Lay repeatedly drew down his $7.5 million credit line with Enron and paid it back with Enron shares, eventually reaping $70 million, which he used to pay down part of $100 million in personal loans he owed.
Hueston displayed to the jury monthly SEC reports detailing Enron executives stock holdings that showed Lay's Enron holdings were reported to be steady or increasing in 2001, despite the sales he was making.
I was informed by the internal lawyers and (Enron regulatory lawyer) Rex Rogers that those did not need to be disclosed until the annual report, Lay said.
They (investors) had no knowledge that your ownership instead was decreasing? Hueston asked.
That is correct, Lay said.
Lay has not been charged with illegally selling the stock, although prosecutors have highlighted the sales to raise questions about Lay's character and his knowledge about the company's prospects.
The prosecutor also took aim at the characterization by Lay's lawyer of the investors who sold Enron stock short, betting on its decline, as vultures who had conspired to bring Enron down.
Were you aware your own son Mark was selling Enron short? Hueston asked. Was your son part of that conspiracy?
I guess I should ask him now, Lay responded.