Enron boss blames chief financial officer

Kenneth Lay told the jury he did not lie to investors. Picture / Reuters

HOUSTON - Former Enron chairman Kenneth Lay has denied committing the fraud that destroyed his company, blaming a thieving subordinate, short-sellers and journalists.

Lay, 64, took the stand yesterday in his own defence as his federal fraud trial entered its 13th week. The Enron founder testified his biggest mistake was hiring former chief financial officer Andrew Fastow, who pleaded guilty to fraud and faces 10 years in prison.

"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.

"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."

Lay and former chief executive officer Jeffrey Skilling, 52, are accused of conspiring to defraud investors in Enron, once the seventh-largest US company. Skilling also is accused of insider trading. Both face 25 years in prison.

Lay called Fastow, 44, accused of stealing US$25 million ($40 million) from Enron, a liar and a thief. "A person at the very heart of our organisation, the chief financial officer, was basically stealing from the company."

Lay also said stock traders who bet on the decline of a security, known as short-sellers, conspired to bring down Enron.

In January 2001 they got together to decide what company they would target for the year, Lay said. "And Enron was the target."

Finally, he said Enron was targeted by two Wall Street Journal reporters who were being fed documents about Fastow's activities and decided to go after Enron. He didn't name the reporters.

These three elements combined with a declining economy, the attacks of September 11, and the bursting of the technology-stock bubble, caused Enron's collapse, Lay said.

Lay spent much of his first morning on the stand laying the groundwork for a main theme of his defence: that he relied on outside accountants and lawyers to ensure that the company's activities were legal.

Lay is primarily charged with lying to investors about Enron's financial health during the three months before it plunged into bankruptcy in December 2001. Defence lawyer Mac Secrest asked whether any of the statements he made to analysts and employees was ever "intentionally false".

"Absolutely not," Lay replied.

Lay stressed that he was not an accountant and that the company's outside auditor, Arthur Andersen's Houston office, decided with former chief accounting officer Rick Causey how to record transactions. Causey, 46, has pleaded guilty to one count of securities fraud.

- BLOOMBERG