HOUSTON -- Enron Corp. founder and former Chairman Kenneth L. Lay began his long-awaited testimony yesterday by declaring his innocence and telling a federal jury that the energy company's 2001 bankruptcy filing turned his American dream into an "American nightmare."
Lay quickly drew a distinction between responsibility and blame for Enron's collapse. He said he accepted "full responsibility for everything that happened at Enron" but placed much of the blame on Enron's former chief financial officer, Andrew S. Fastow, who looted the company of millions of dollars, pleaded guilty to conspiracy and became the government's star witness.
"The deceit of Andy Fastow" headed Lay's list of factors in the collapse of Enron, followed by a series of negative news articles in The Wall Street Journal that Lay said was prompted by short-sellers, investors who stood to get rich betting that Enron's stock would fall.
A slowing economy, the Sept. 11 terror attacks and uncertainty surrounding former chief executive Jeffrey K. Skilling's surprise resignation from Enron in August 2001 also contributed tinder for a panic that, like a run on a bank, couldn't be stopped once it started, Lay said.
At the time, Enron's gas and electricity trading business had grown into a behemoth that generated 90 percent of the company's profits. But that business, Lay testified, was "totally dependent" on the confidence of its trading partners.
When they lost confidence, they stampeded to cash in their positions and pull money from Enron, which led to the bankruptcy filing.
The conspiracy and fraud trial, which entered its 13th week yesterday, is the first time that Lay has told his story under oath. His co-defendant, Skilling, testified before Congress, a grand jury and the Securities and Exchange Commission in the months after Enron's bankruptcy filing.
Skilling, tense and acerbic, completed two weeks on the stand Thursday. Lay's demeanor, under questioning by defense lawyer George M. "Mac" Secrest, was calm and serious, with only a glimpse of the smiling, avuncular frontman that Houston had come to know.
Lay's first and second wives and several of his five children and their spouses sat in the front row of the crowded courtroom. His daughter Elizabeth, a trial lawyer and member of his legal team, sat next to him at the defense table. Skilling's current and former wives also attended while he testified.
Lay, 64, faces six counts of conspiracy and securities fraud. Skilling, 52, faces 28 counts of conspiracy, securities fraud and insider trading. The two are accused of lying to the public to hide Enron's shaky financial health and conspiring with subordinates to hide losses and pump up profits. The two men could spend decades in prison if convicted.
Lay was expected to spend several days giving his version of events.
Enron's bankruptcy cost investors billions, and many employees lost their jobs and retirement savings in the company's collapse.
Prosecutors say Lay and Skilling oversaw a conspiracy to exaggerate earnings and hide losses and debt, misleading investors, employees and the public to enrich themselves on a rising stock price.
Lay said the conspiracy charge "is about the most ludicrous thing in the indictment." He said it was inconceivable that he would have resumed the CEO's job when Skilling left and immediately taken charge of a conspiracy.
"I don't think there ever was a conspiracy of any kind," Lay testified. He specifically denied lying to or intentionally misleading investors, employees or the public.
Asked to identify his biggest mistakes at Enron, Lay said he never should have agreed to Fastow's hiring, never should have let him rise to chief financial officer and never should have allowed him to create and run his now-notorious off-the-books partnerships while continuing to serve as CFO.
The government contends that the Fastow partnerships were a mechanism for hiding Enron's "dog" assets and creating fraudulent profits.
Lay also directly refuted Fastow's claim that the CFO had given him a rundown in 2001 of huge, looming write-offs, a huge accounting error and deterioration of fragile financial structures Enron allegedly used to mask losses.
Asked whether Fastow ever discussed such a list of impending problems with him, Lay said, "That did not happen, period."
Lay said that when he gave up the chief executive post to Skilling in February 2001, he thought the company was in good shape. After Skilling suddenly resigned for personal reasons that August, Lay - who had remained as chairman - said he retook the CEO reins still believing that Enron was strong.
Lay backed up Skilling's testimony that the younger executive had resigned for personal reasons, not because of any impending blowup at Enron.
He also emphasized that he was reluctant to take back the CEO's job, just as he had been reluctant to stay at the company after Skilling was named to replace him.
"The last thing I would do is step back in as CEO and pick up leadership of a conspiracy, having lived my whole life in such a way, doing ... what I thought was right," Lay said.
But he said Skilling and the board talked him into staying, instead of retiring, which he had wanted to do.
"I suspect that if I'd done that," Lay said, "I wouldn't be sitting here right now."
Thomas S. Mulligan writes for the Los Angeles Times. The Dallas Morning News and Associated Press contributed to this article.