Risk & Compliance

Lay: Fastow Was ”Basically Stealing”

Enron's former chairman points his finger at ex-CFO Andrew Fastow and others as responsible for the energy company's demise.
Stephen TaubApril 24, 2006

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Former Enron Corp. Chairman Kenneth Lay, who took the stand today in his trial in Houston, denied he was part of a wide conspiracy to defraud, instead blaming his former chief financial officer, short sellers, negative newspaper articles, and a weak post-Sept. 11 stock market for the former energy giant’s collapse, according to published reports.

“Let me be entirely clear: The last thing I would do is step back in as CEO and pick up a conspiracy,” said Lay, referring to his return as CEO in August 2001.

He said he believed Enron was “one of the strongest companies…in the country,” according to Bloomberg.

Lay said his biggest mistake was hiring former CFO Andrew Fastow. “It was what Andy did and hid and what the Wall Street Journal, with the help of short sellers, wrote that kicked off a run on the bank that we just couldn’t stop,” Lay said, according to the wire service. “I accept full responsibility for everything that happened at Enron. Having said that, I can’t take responsibility for illegal acts that I had no knowledge of.”

Fastow has been accused of stealing $25 million from Enron through off-the-books entities and pled guilty to fraud charges. He faces up to 10 years in prison. Lay called Fastow a liar and a thief, according to Bloomberg. “I think it all begins with the deceit of Andy Fastow and probably not more than one or two other people,” Lay reportedly told the jury. “A person at the very heart of our organization, the chief financial officer, was basically stealing from the company. And stealing before there ever became something called LJM or Raptors.”

As for the short sellers, Lay said in January 2001 these investors got together in a “bears in hibernation meeting” to decide their target for the year. “And Enron was the target,” Lay asserted.

He also blamed two Wall Street Journal reporters, alleging they were being fed documents about Fastow’s activities and decided to go after Enron, according to Bloomberg. “They had information we didn’t even have at that time, even in late 2001,” Lay stated, according to The Journal.

The deteriorating economy, the 9/11 terrorist attacks, and the popping of the 1990s tech bubble spelled additional trouble for Enron, Lay added.

“In the end, Enron’s failure was caused by a classic run on the bank,” Lay said, according to the Journal. “It was an environment very ripe to create an investor panic and more importantly a credit-market panic.”

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