Former Enron boss in denial as evidence mounts

For evidence that former Enron chairman Kenneth Lay either lies about or blinds himself to ugly realities, consider what he said to reporters this week after ending his disastrous six days on the witness stand:

"I think today has been a good day for us. I think the last week or so has been a good week for us."

Was he in the same courtroom where his trial is going on? Didn't he hear his own testimony, or that of the witnesses? On that last "good" day, one of Lay's witnesses, New York lawyer Martin Siegel, testified that Lay had considered suing the then-bankrupt Enron for US$60 million ($93 million) in 2003, claiming breach of contract and unfulfilled retirement obligations.

So much for Lay's claim that he loved Enron. So much for feeling the pain of investors and former employees, who were seeking compensation from the same pot.

On that same good day in the courtroom, prosecutor John Hueston elicited these words from Lay about Enron's ethics code, which Lay acknowledged violating with a certain, minor investment:

"Rules were important, but you should not be a slave to rules, either."

By saying that, Lay magnified the significance of a US$120,000 commitment he made to a start-up company that did business with Enron. He elevated the investment from something unrelated to his indictment into evidence of an over-arching attitude: the rule-breaking attitude that sank Enron, in oh so many ways.

Conflict of interest rules? If Lay had slavishly followed them, he would have opposed the rules-waiver for chief financial officer Andrew Fastow.

The waiver let Fastow set up and operate partnerships that bought - or, as it turned out, borrowed - Enron's more troubled assets, backed largely by Enron stock. Those funds and the obvious conflicts of interest they created helped destroy Enron.

Lay, nonetheless, refused to take responsibility in any real way for Enron's demise. He accepted only generalised blame as head of the company when bad things happened and said he regrets hiring Fastow.

On trial in Houston with former Enron chief executive officer Jeffrey Skilling, Lay stands accused of conspiracy and lying to investors, employees and to rating agencies about Enron's financial health.

The best thing Lay had going for him before he took the stand was his famously pleasing, glad-handing personality. Such sunny optimism could have caused him to diminish the importance of bad news at Enron in his own mind and exaggerate the company's strengths.

If he believed what he was saying to investors and employees and rating agencies, how could it be a lie?

But on the witness stand, his affability gave way to arrogance and an angry insistence that he was right, no matter all evidence to the contrary.

Even now he says, incredibly, that Enron was a mostly healthy company done in by a few in-house thieves whose schemes were blown out of proportion by a vast conspiracy of short-sellers and journalists.

His problem is that Enron gave the short-sellers and journalists too much material. In one series of questions, Hueston established that news articles Lay had claimed were the product of a "witch hunt" were, in fact, accurate.

Nor did it help his conspiracy theory to learn that his own son was short-selling Enron stock, as Hueston informed him on another good day.

Still, if Lay hadn't been so hostile and stubborn in his testimony, perhaps he could have convinced at least some jurors that his optimism, and not some sinister attempt to pump up the share price, explained his rosy financial declarations.

Even if prosecutors can't prove beyond reasonable doubt that Lay believed Enron was ailing when he said it was well, they could still win a conviction, depending on how the judge instructs the jury.

US District Judge Sim Lake could tell jurors that if Lay consciously avoided learning the truth about Enron's finances, deliberately or through negligence, they could still find him guilty of fraud.

If Lay accepted as true only what he wanted to believe and discounted the significance of everything else, he could still be in trouble.

In Lay's world, as he described it to jurors, a US$1.2 billion write-down for an accounting error wasn't a big deal. And he didn't believe indications that Enron's balance sheet contained as much as US$7 billion in overvalued assets.

Hence he was being truthful, he says, when he told employees on September 26, 2001, that "we're positioned for a very strong fourth quarter".

Before the quarter was over, Enron was in bankruptcy.

- BLOOMBERG