After exchanging some parting shots with his prosecutor, Kenneth Lay finished six days of testimony at his federal fraud and conspiracy trial Tuesday by professing love for Enron Corp., the company he founded, and the people who worked there.
“I loved Enron very much,” Lay said in a brief response to the final question from his lawyer, George Secrest. “And I loved Enron’s employees very much. I spent half my professional life running Enron. I think we built a great company. We changed energy markets around the world.
“I think the most painful thing in my life was watching Enron finally have to go into bankruptcy.”
The comment was similar to his statement at the opening of his testimony last week. And as he has during more than a week on the witness stand, Lay jousted with prosecutor John Hueston, this time over taking responsibility for the implosion of the once-giant energy trading company.
An accounting professor from the University of Southern California hired by the defense testified that Enron’s accounting was sound.
Jerry Arnold spent much of Tuesday afternoon on the stand discussing accounting regulations in minute detail and offering an analysis of Enron’s financial reporting. He focused on the third quarter of 2001 when Enron reported $638 million in losses and a $1.2 billion reduction in shareholder equity related to failed broadband and water-trading ventures as well as the unwinding of so-called Raptors, off-the-books financial structures backed by falling Enron stock.
The government alleges Lay knew many Enron assets were overvalued, that losses were coming and misrepresented this to the public.
Arnold, who was to return to the stand Wednesday, said Enron accounting and financial reporting was proper.
He acknowledged that he was paid more than $1 million for his work.
“I’m here to provide my expertise on facts and circumstances,” he said, defending the expenses. “I’m not here, if you’ll excuse the expression, to be a hired gun.”
Earlier, Lay continued to cite deceit by former Chief Financial Officer Andrew Fastow as being “at the heart” of Enron’s collapse.
“Your list of people to blame and events to blame did not include yourself, did it, sir?” Hueston asked him.
“Did I make mistakes?” Lay replied. “I’m sure I did, Mr. Hueston. I had to make real-time decisions based on the information I had at the time.”
Hueston accused Lay of making self-serving statements, and Lay replied: “It is just the truth.”
The pair also disagreed over other testimony, like that of former Treasurer Ben Glisan, who pleaded guilty to conspiracy and testified Lay and his co-defendant, former Enron Chief Executive Jeffrey Skilling, knew financial structures that Glisan and Fastow had created were hiding losses at Enron.
Told by Hueston that Glisan had no reason to lie, Lay replied: “He did not tell the truth. That I know.”
Under more friendly questioning from Secrest, Lay denied prosecution suggestions last week that he was trying to tamper with witnesses when he tried to speak with them.
“I was trying to see if they would meet with my lawyers,” Lay said.
He said he suggested through a woman who once worked at Enron that he and prosecution witness Vince Kaminski “have a cup of coffee.”
Lay also added sarcastically, “I guess the FBI will now talk to her.”
He said he was surprised to learn Kaminski, a former top risk analyst at Enron, was a prosecution witness. Kaminski told jurors he got a cold response when he told Lay and other executives in October 2001 that Enron needed to “come clean” on questionable financial structures in the weeks before it filed for bankruptcy protection in December.
Lay and Skilling, who testified earlier in a trial now in its 14th week, are accused of repeatedly lying to investors and employees about Enron when they allegedly knew the company’s success stemmed from accounting tricks.
The two men counter no fraud occurred at Enron other than that committed by a few executives, like Fastow, who stole money through secret side deals. They attribute Enron’s descent into bankruptcy proceedings to a combination of bad publicity and lost market confidence.
Following Lay to the stand was Martin Siegel, an attorney from New York working for Lay in a related Enron case, who said his client had been trying to pay off $7 million he owed Enron from a 2001 draw from a company line of credit.
Under questioning from Lay’s lawyer, Bruce Collins, that drew repeated objections from lead prosecutor Sean Berkowitz, Siegel said the attempt to repay was hampered by Hueston, who never responded to documents sent to him.
“The deal died,” Siegel said.
Berkowitz, however, suggested the impediment was Lay’s “horse trading” to retrieve from Enron an insurance policy worth more than $1 million in exchange for the repayment of the loan.
“I don’t know what you mean by horse trading,” Siegel said.
Preceding Arnold, Lay had several character witnesses testify for him, including former Houston Mayor Bob Lanier and retired Adm. George Kinnear, who first met Lay in the late 1960s when both were teaching at George Washington University. Kinnear and Lay later served on the board at Houston’s Compaq Computer Corp.
Somewhat oddly, both described Lay as “straight as a string.”
Lanier, who served six years as mayor of Houston in the 1990s, said he thought Lay would have been a good mayor.
“I thought he was visionary for Enron, visionary for the city,” Lanier said.
Houston Astros owner Drayton McLane testified that Lay was instrumental in winning voter approval for a new downtown baseball stadium and that they together worked for other community projects.
“I found him to be very honorable,” McLane said.
And the Rev. William Lawson, a retired Houston pastor and civil rights leader, discussed his respect for Lay.
But when asked under cross-examination by prosecutor Cliff Stricklin if “even good people can make bad decisions,” Lawson replied: “I think there’s not one of us in this room for which that is not true.”
None of the character witnesses said they were knowledgeable about Lay’s dealings at Enron.
Asked by Lay attorney Chip Lewis if he knew Lay to be a greedy person, Lanier, himself a multimillionaire developer, replied: “I don’t think he’s indifferent to money, but in my experience he never showed a greedy side to me.”