Former Enron Chairman and Chief Executive Kenneth Lay took the witness stand at his corporate fraud trial on Monday and steadfastly denied he knew of any crimes at the energy company he headed for more than 15 years.
Lay, 64, said Enron's collapse into bankruptcy in December 2001 devastated him more than anything else in his life, including the loss of many of my loved ones, but he believed the company was healthy even in its final months.
Lay is on trial with former Enron Chief Executive Jeffrey Skilling on charges that they lied to investors about the financial condition of the company, once the seventh largest in the United States, whose dramatic collapse into bankruptcy was the largest ever at the time.
Lay, under questioning from his own lawyer, George Mac Secrest, distanced himself from everyday workings at the company, saying Enron relied on dozens of auditors that accounting firm Arthur Andersen kept inside the Enron building.
We basically turned over all our internal and external audit functions to an outside auditing firm, and that was Arthur Andersen, he said. We basically had a real-time audit by Arthur Andersen going on all the time.
Lay said his economic expertise was on the macro and political levels.
Lay, the son of a minister who grew up in poverty in Missouri, said his rise to the top of the corporate world was viewed by many as a rags-to-riches example of the American dream. But all that crumbled with the company's demise and the criminal charges that followed.
I guess you could say in the last few years I've achieved the American nightmare, Lay said.
Arthur Andersen imploded and ceased accounting services after it was charged with wrongdoing at Enron. The company was found guilty of obstruction of justice, although that conviction was later overturned.
Enron's collapse into bankruptcy was the first in a wave of corporate scandals that went on to include Worldcom, Global Crossing, HealthSouth Corp. and Adelphia Communications Corp.
Lay's relaxed, folksy delivery was a stark contrast from the eight days of Skilling's testimony, which was often marked by angry exchanges with the lead prosecutor.
Lay, who landed a senior energy position in the U.S. Interior Department in the 1970s after earning a doctorate in economics, as a businessman was well-connected at the highest levels in Washington. He counted among his friends former President George H.W. Bush and President George W. Bush, who nicknamed the Enron CEO Kenny Boy.
He repeated his belief that Enron did not collapse because of an accounting scandal, but was brought down by a crisis of investor confidence stemming from revelations that former Chief Financial Officer Andrew Fastow had skimmed millions of dollars from the company.
I've said before I accept full responsibility for everything that happened at Enron, Lay said. Having said that, there's no way I could take responsibility for the criminal conduct that I didn't know about.
Fastow pleaded guilty to two counts of conspiracy and agreed to cooperate with prosecutors in exchange for a 10-year jail sentence.
Fastow's theft, a series of wrongfully damning articles in the Wall Street Journal and a group of predatory investors at time of chaotic stock market conditions all contributed to the company's downfall, he said.
Prosecutors believe Lay took charge of a criminal conspiracy at Enron after he returned to the CEO post in August 2001 when Skilling resigned after just six months in the top spot.
Lay knew the company had illicitly used Fastow's partnerships to hide billions in debt and inflate earnings, the government contends, and was warned by company whistleblower Sherron Watkins months before it sunk into bankruptcy.
But Lay said he met with Watkins and pressed her on whether she thought the company had broken the laws.
Nothing I heard indicated any type of illegal activity or fraudulent activity, he said.
At the conclusion of the trial, Lay will face a separate trial on his own on four charges of bank fraud for his use of loans to buy stock on margin. At Lay's request, that case will be heard by a judge, not a jury.