Risk & Compliance

Lay’s Son Sold Enron Short

Former Enron chairman Kenneth Lay, who has blamed "vulture" short sellers for Enron's demise, seemed surprised when prosecutors said his own son wa...
Stephen TaubApril 27, 2006

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In the ongoing Enron trial, former executives Kenneth Lay and Jeffrey Skilling have frequently asserted that short sellers deserve a lot of the blame for the energy giant’s demise. Indeed, Lay referred to them as “vultures” on Wednesday.

So prosecutors created a stir Thursday by asking Lay about his own son’s short selling activities.

“Your own son Mark was a short seller of Enron, wasn’t he?” asked prosecutor John C. Hueston, according to the Houston Chronicle.

Lay responded: “I don’t know that.”

Hueston then read from a document: “…Mark Lay trade dates March 23, short sales of Enron Corp.”

“So he was a short-seller?” Hueston repeated, according to The Chronicle.

“I suppose so,” said Lay, who seemed genuinely surprised by the revelation, according to the Chronicle.Hueston then asked Lay whether his son was a vulture, to which Lay reportedly responded: “I don’t think so.”

Later in the day, the prosecutor accused Lay of hiding sales of $77 million of Enron stock in 2001 from the public. “During 2001, the investing public had no way of knowing that you were selling $77 million of your Enron stock,” Hueston asked, according to the Chronicle.

Lay agreed, saying, “That’s correct.”

Hueston was referring to Lay’s use of Enron shares to pay back a revolving line of credit — from which he repeatedly borrowed — although the transactions were never reported to the public as required. According to the paper, Hueston also displayed proxy statements that did not indicate sales made by Lay in 1999 and 2000. Enron’s filings also did not disclose the existence of an amendment Lay had drafted with the company that allowed him to pay off his credit line with Enron stock.

Asked to confirm that the amendment was never attached to 10-K filings, Lay reportedly responded, “I did not know that.” When asked whether Lay had reviewed the 10-K, Lay reportedly said he had, but “never noticed” that the amendment wasn’t included.

During further questioning, Hueston ticked off the names of former Enron executives who have agreed to plea deals and given money to “victim’s funds” for former Enron employees. He then reportedly asked Lay whether he had given any money to victims of Enron’s demise.

“I have paid to funds to help some of the employees, I guess you’re referring to them as victims,” Lay responded, according to the Chronicle. Lay reportedly added that “I certainly would have preferred to help employees rather than pay for lawyers, but as you saw yesterday, Mr. Hueston there’s nothing left.”

On Wednesday, Lay said his net worth is now a minus $250,000 after swelling to as much as $400 million.

Invoking Lay’s earlier testimony, Hueston also reportedly asked how Lay could claim to take responsibility for Enron’s demise without admitting to doing anything wrong.

“I said,” Lay responded, “as CEO of Enron . . . as Harry Truman said, ‘The buck stops here,’” adding that he “can’t take responsibility for the criminal activities of others,” according to the Chronicle.

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