Lay too busy to heed employees' warnings

HOUSTON — Enron Corp. founder Kenneth Lay received a barrage of written warnings from employees questioning the energy giant's accounting integrity in the fall of 2001 but said on Monday that he was too busy trying to save the company to investigate.

The ex-chairman was combative during his fifth day on the witness stand in his fraud and conspiracy trial, accusing a federal prosecutor of highlighting only negative information.

"I didn't have that luxury (of hindsight) when I was right in the middle of battle," Lay protested.

Prosecutor John Hueston, in his third day of cross-examination, sought to show that Lay ignored warnings of accounting impropriety and financial doom after resuming as chief executive upon the resignation of co-defendant Jeffrey Skilling from that role in mid-August 2001. Enron, once the seventh-largest company in the United States, filed for bankruptcy protection in December.

Yet in November 2001, with Enron's stock and reputation already in the tank, Lay told employees he could "not have ever contemplated" what lay ahead for the company and its stockholders.

As he did last week, Lay bristled and bickered, claiming he had received positive information along with negative.

One warning came in October 2001 via an e-mail from Jim Schweiger, a longtime trader, three days after Lay announced a massive third-quarter loss and $1.2 billion writedown in shareholder equity. The bulk of the losses had been triggered by the unwinding of financial structures, run by former Chief Financial Officer Andrew Fastow, that prosecution witnesses testified were used to hide faltering businesses and boost earnings.

"The fact that senior management and the (Enron) board of directors knew these transactions were being used to manipulate earnings and the stock price, and took advantage of that knowledge to sell their ENE stock options, in my opinion, is CRIMINAL," according to Schweiger's e-mail, which was displayed on a large screen, portions of it read aloud to jurors.

If Lay was going to "play the game of lying, cheating and stealing," he should have a "plausible story," the e-mail said.

Lay bristled when Hueston pressed him on why he didn't investigate Schweiger's allegations.

"I was getting information from all sides, Mr. Hueston," Lay said.