February 4, 2002
Enron boss cancels testimony 
Cites 'disturbing' TV talk: Blames 'prosecutorial' tone, claims of security fraud
Jason Chow 
National Post 
Former Enron Corp. chairman Kenneth Lay said yesterday he would not testify at today's scheduled congressional hearing into the company's collapse, blaming legislators' "prosecutorial" comments on TV talk shows yesterday.
"Not only were there corrupt practices, we are finding what may clearly end up being security fraud," Republican Rep. Billy Tauzin, chairman of the House Energy and Commerce Committee, told NBC's Meet the Press.
An internal company report released Saturday criticized Mr. Lay, other executives, board members and auditors for the collapse.
It showed managers took home millions of dollars through complex partnerships, while hiding at least US$1-billion in losses.
Other politicians denounced the company's management before TV cameras yesterday in response to the report.
Last night, Mr. Lay cancelled his testimony.
"In the midst of our preparation, particularly disturbing statements have been made by members of Congress, even today, on the eve of Mr. Lay's scheduled appearance," his lawyer, Earl Silbert, said in a letter to lawmakers on the Senate Commerce Committee and the House Financial Services Committee.
"I have instructed Mr. Lay to withdraw his prior acceptance of your invitation."
Sen. Byron Dorgan, chairman of another Senate Commerce subcommittee investigating the biggest bankruptcy in U.S. history, said on Meet the Press the report "suggests massive problems" and shows "a culture of corruption."
While Mr. Dorgan said it was up to the U.S. Justice Department to decide whether to press criminal charges, he added the report showed "clearly some things have happened here that are going to put some people here in real jeopardy."
The 203-page report, written by a team headed by the dean of the University of Texas Law School, said Mr. Lay "bears significant responsibility" for "flawed decisions" in approving some transactions that hid debt and offset losses.
The report said these transactions did not follow accounting rules and were implemented improperly, resulting in Enron overstating earnings by US$1-billion during a one-year period starting in September, 2000.
"Ken Lay obviously had to know that this was a giant pyramid scheme -- a giant shell game," said Republican Sen. Peter Fitzgerald.
Enron, once the seventh-largest U.S. corporation, began to unravel in October after it said shareholder equity was reduced by around US$1-billion. The company said it used stock to pay off the debt of some of the complex partnerships it had created to reshuffle assets and hide debt.
With its stock already in a tailspin, the Enron house of cards began to collapse. The October writedown raised questions about how Enron accounted for debt and losses of similar affiliated partnerships. On Nov. 8, it restated earnings back to 1997, lowering them by US$586-million.
The company filed for bankruptcy on Dec. 2. Its shares sank below US$1 from more than US$80 a year ago, wiping out over US$60-billion worth of investors' stock including the retirement savings of thousands of Enron employees whose pension plans were tied to the shares.
Mr. Lay's decision to withdraw will undoubtedly raise more questions of his strong political connections to the White House.
Mr. Lay, an old friend of U.S. President George W. Bush, was also a major donor to Mr. Bush's presidential campaign, contributing $326,000 in "soft money" to the Republican Party.
Mr. Bush has been dogged by questions about the six meetings Vice-President Dick Cheney or his staff held with Enron executives last year. Mr. Cheney has refused to release records on those meetings, saying they involved matters of energy policy, prompting an unprecedented lawsuit from the congressional General Accounting Office.
The personal drama of the top level executives involved has created a subplot of its own. Clifford Baxter, a 43-year-old former Enron vice-chairman, committed suicide about two weeks ago.
And Mr. Lay enlisted his wife Linda last week in a bid to garner public support, appearing on a series of teary interviews on NBC's Today Show where she said her husband had "lost everything" even though he received more than US$200-million since 1997 from salary, bonuses and sales of Enron stock.
The Enron report released Saturday singled out other top Enron employees who were involved with affiliated partnerships that enriched themselves by "tens of millions of dollars they should have never received."
The report said former chief financial officer Andrew Fastow pocketed at least US$30-million, and former general manager Michael Kopper took at least US$10-million. The two worked together in forming several partnerships that bought assets off of Enron.
But the existence of these transactions "was merely one aspect of a deeper and more serious problem," the report said.
"Many of the most significant transactions apparently were designed to accomplish favorable financial statement results, not to achieve bona fide economic objectives or to transfer risk," the report said.
"They allowed Enron to conceal from the market very large losses."
The report also implicated Enron's auditor, Arthur Andersen LLP, for conspiring with the company. Andersen officials involved with Enron are scheduled to testify today.
Though Mr. Lay has no plans to talk before the committees, politicians have said they will rope him into the hearings using whatever means necessary.
"Our committee plans to call him as a witness, and if he refuses, he'll be subpoenaed just like everyone else," said Ken Johnson, spokesman for Mr. Tauzin. "They were looking for any excuse to try to wiggle off the hook."
jchow@nationalpost.com <mailto:jchow@nationalpost.com>