The federal government's 2 1/2 -year investigation into the collapse of Enron Corp. reached the top of the shattered energy company's boardroom yesterday, as former Chairman and CEO Kenneth L. Lay was indicted on criminal charges related to the company's spectacular and unprecedented implosion.
The indictment, filed under seal before a U.S. magistrate judge in Houston, was confirmed by federal sources familiar with the case. Lay, 62, is expected to surrender to authorities today, when the indictment will be unsealed and released publicly, the sources told The Sun.
Exposure of accounting mischief at Enron tore apart the United States' seventh-largest public company and fractured investor confidence in the nation's equity markets.
Enron's bankruptcy in 2001, then the largest in U.S. history, cost thousands of employees their jobs and pensions, sapped $30 billion in shareholder value, spawned congressional hearings and led to a collapse of the company's outside accounting firm, Arthur Andersen.
Much of Enron's former management team has already faced legal proceedings, with several top officials pleading guilty to felonies. Jeffrey K. Skilling, who served briefly as chief executive when Lay tried to retire in 2001, has been charged with conspiracy, fraud and insider trading, with Richard A. Causey, the former chief accounting officer.
Lay had considered criminal charges against him all but inevitable, telling The New York Times last month that "it's probably a tougher decision not to indict me than to indict me." But the Texas businessman, who has consistently maintained his innocence, said he was misled by other officials at the Houston energy company, particularly Andrew S. Fastow, the former chief financial officer who pleaded guilty to conspiracy earlier this year and is cooperating with prosecutors.
"I take full responsibility for what happened at Enron," Lay told the Times. "But saying that, I know in my mind that I did nothing criminal."
Details of the charges against Lay have not been disclosed, but the accounting mischief at Enron long ago became the stuff of front-page headlines, business school studies and late-night TV monologues. Using a complex web of off-the-books subsidiaries and insider business deals, the company inflated its profits and defrauded investors.
The Associated Press reported yesterday that the Securities and Exchange Commission plans to bring civil fraud charges against Lay today, citing a source familiar with the case. Those charges would include making false and misleading statements and insider trading, the news agency reported.
Lay's lawyer, Michael Ramsey, did not return a telephone call from The Sun seeking comment.
Observers expect a rigorous defense from Lay, if for no other reason than that prosecutors are thought to be unlikely to plea bargain with such a high-profile defendant. Kirby Behre, a former federal prosecutor and co-author of a book on federal sentencing for business crimes, said prosecutors would be unlikely to be gentle unless their case against Lay is weak.
"He's literally playing for the rest of his life," Behre said, referring to Lay's age and the likely sentence if charges match those in other Enron cases. "He'd be facing 20 to 30 years, easy."
A trained economist, Lay became CEO of the regional pipeline operator Houston Natural Gas in 1984 and oversaw a series of mergers and expansions that transformed the company into what would later be renamed Enron Corp. He was chairman of the board throughout his tenure, and under his leadership the company branched out from the energy business into the complicated and risky business of trading futures and other derivatives. The Economist once described the trading-frenzied Enron as an "evangelical cult," referring to Lay as "the energetic messiah."
Lay was criticized for selling his shares of Enron stock as the company collapsed, deals he later said were beyond his control because he had posted the stock as collateral for loans that he could not repay as the company's value plummeted. In 2002, he refused to testify before a congressional panel, invoking his constitutional right against self-incrimination.
Enron, with Lay at its helm, was the first in a wave of corporate accounting and ethics scandals that also brought down WorldCom and smaller corporations and led Congress to rethink the federal government's oversight powers and caused much of America to question its trust in big business.
"It's been a wake-up call to a lot of corporate executives," said Dean W. Krehmeyer, executive director of the Business Roundtable Institute for Corporate Ethics at the University of Virginia. Lay's indictment "reinforces the message. We've seen enough executives and folks walked away in handcuffs and indicted that I believe the message has been received."
In his Times interview, Lay suggested that his close personal and political ties to President Bush posed an image problem for prosecutors on the Justice Department's Enron task force, making charges against him likely. The case's political utility revealed itself quickly yesterday, with the Democratic National Committee releasing a statement questioning whether Lay's ties to Bush had delayed the indictment.
Lay told the newspaper that the filing of criminal charges against him would be "a great miscarriage of justice." Asked whether he would consider pleading guilty, Lay responded: "Absolutely not."
Sun staff writers Paul Adams and Laura Sullivan contributed to this article.
Kenneth L. Lay at a glance
AGE : 62
OCCUPATION : Consultant; founder and former chairman and CEO of Enron Corp.
FAMILY : Wife, Linda; son Mark, daughter Robin from a previous marriage.
BORN: 1942 in Tyrone, Mo. His father, Omer, tried selling farm equipment and working in a feed store, but became a Baptist minister after bankruptcy.
EDUCATION: Bachelor's and master's degrees in economics, University of Missouri; Ph.D. in economics, University of Houston.
WORK HISTORY: Senior economist at Humble Oil and Refining Co. After earning his doctorate, he became an economist in the Navy, then in 1971 undersecretary of energy. In 1974 he joined Florida Gas, becoming president by 1981. Returned to Houston in 1982 to run Transco Energy Co. Took the helm of Houston Natural Gas in 1984. In 1985, HNG merged with Omaha, Neb.-based InterNorth, and the combined company became Enron with Lay as CEO. In 2001 Jeffrey Skilling took over as CEO and Lay remained as chairman. Lay resumed the CEO job upon Skilling's abrupt departure in August 2001, and two months later revealed huge third-quarter losses and a $1.2 billion writedown in shareholder equity. Lay resigned as CEO in January 2002 and stepped down as chairman the next month
POLITICAL ACTIVITY: Nicknamed "Kenny Boy" by President Bush, who received more than $550,000 from the company, its employees and their relatives during his political career. More than 250 members of Congress from both parties also received Enron contributions, though three-fourths of $5.77 million given to candidates since 1989 went to Republicans.
CHARITABLE GIVING: Linda and Ken Lay Foundation took in $14 million in 2000 and donated $2.5 million to charities, museums and other organizations.
Former Enron Corp. Chairman Kenneth L Lay was indicted on criminal charges relating to the company's collapse.
Former CEO Jeffrey K. Skilling and former top accountant Richard A. Causey are charged with conspiracy, fraud and insider trading.
Former chief financial officer Andrew S. Fastow pleaded guilty to conspiracy and will be cooperating with U.S. prosecutors.