The wife of Enron founder Kenneth Lay is under federal investigation for possible insider trading because she arranged for the Lay family foundation to sell half a million shares of Enron Corp. stock days before the energy company went bankrupt in 2001, Lay’s lawyer said Wednesday.
“It appears to me to be an act of extortion,” said Michael Ramsey, Lay’s lead lawyer, noting that the government has had records of all personal and foundation-related stock sales by the Lays for at least two years.
The government’s renewed interest in the Nov. 28, 2001 sale arranged by Linda Lay comes when her husband faces 11 counts of fraud, conspiracy and lying to banks in two separate pending criminal cases. He staunchly maintains he committed no crimes. No trial date has been set.
“This is purely an attempt at intimidation,” Ramsey said in a telephone interview. “And it’s not going to work. They can run, but they can’t hide. Eventually we’re going to get them into court.”
He said he would represent Linda Lay “if she needs representation.”
Andrew Weissmann, head of the Justice Department’s Enron Task Force, declined comment.
The sale of 500,000 shares in the name of the Ken and Linda Lay Foundation netted about $1.2 million, all of which Ramsey said was distributed to charities to help make good on pledges.
The sale came on a day when Enron, then listed on the New York Stock Exchange, broke what was then the record for heaviest trading in a single day. Records show 339 million shares traded hands after credit agencies slashed Enron's rating to junk status and former rival Dynegy Inc. abandoned a planned merger.
The government could be focusing on whether Linda Lay arranged the sale based on public information or insider information that the merger was crumbling. Doubts about the merger had swirled in media reports for days.
Dynegy announced the merger was off the morning of Nov. 28, 2001. Enron shares plunged to 61 cents a share from a close of $4.11 the previous day.
Brokerage records at First Union Securities, where the foundation kept its account, show the foundation sold its shares at $2.38, the New York Times reported.
Ramsey noted the foundation’s stock sale “didn’t take place until the market had reacted to the downgrade.”
No date has been set for his trial.
Linda Lay tearfully told a television interviewer in January 2002 the couple was near bankruptcy. She opened a second-hand shop to sell the couple’s unwanted furnishings but closed it earlier this year.
Prosecutors charged the wife of former Enron Chief Financial Officer Andrew Fastow with filing false tax returns in what legal observers said was an attempt to persuade her husband to strike a plea deal.
Fastow agreed in January to a deal that will send him to prison for 10 years in exchange for his cooperation in the cases against Lay, former Chief Executive Officer Jeff Skilling and former chief accounting officer Richard Causey.
Fastow’s wife, Lea, is currently serving a one-year sentence after striking a deal with the government to reduce the charges.