On the heels of his indictment and earlier extraordinary NY Times interview, the Houston Chronicle reporter Mary Flood interviewed former Enron Chairman and CEO Ken Lay on Friday on a wide range of topics relating to the indictment, his initial court appearance, and his post-Enron life.
On the indictment, Lay made the following observations:

He said he didn’t lie to Arthur Andersen accountants in an October 2001 meeting about how big a financial writedown hit the company might have to take for overpaying for a water company. He said the accountants gave him the numbers and told him what was going on.
Lay said he can’t be accused of misrepresenting the health of Enron’s retail business because he thought it was fine. He said there were legitimate business reasons for taking a wildly unprofitable section of the retail business and merging it into the profitable wholesale section, and it wasn’t meant to hide losses.
And he said he did not feel he deceived employees when he told them to buy Enron stock in September 2001 and said he’d recently purchased some himself, while never saying he’d sold six times as much stock as he’d bought.
“I don’t suppose I even thought about it,” Lay said of mentioning the $24 million in cash he’d taken out of the company in trade for Enron stock, but telling employees about the $4 million in stock he bought. “I don’t think it’s deceptive … but the (government) tries to spin sinister thoughts and motives around things,” he said.

And how did Mr. Lay pass the time in the holding cell between arriving at the federal courthouse on Thursday and his initial court appearance?:

. . .Lay started chatting with a couple of other men in his holding cell.
The two, in green prison garb and leg irons, were charged in the smuggling ring deaths of 19 undocumented workers in Victoria.
“One young man said: `I think I saw you on TV last night,’ ” recalled Lay, who had surrendered that day and was awaiting a court hearing so he could be freed on bond.
So for the next three hours, the former CEO and two alleged human smugglers talked. Defendants from other holding cells soon chimed in.
“A couple even asked me for investment advice,” Lay said with a laugh.
His response: “Well, I’ve not really thought much about that recently,” said Lay, who lost hundreds of millions of dollars after Enron’s collapse.

As noted before, Mr. Lay’s campaign to defend himself publicly is highly unusual in a criminal case of this nature. However, the public perception of anybody associated with Enron is so negative that Mr. Lay and his attorneys have apparently concluded that Mr. Lay has little to lose by attempting to persuade at least one potential juror that his management failures at Enron were not criminal in nature. All attorneys representing Enron-related defendants will be watching the upcoming trial in the Nigerian Barge criminal case closely to evaluate whether it is possible for a defendant tainted with the Enron association to receive a fair trial in this highly anti-Enron environment.
Meanwhile, The Economist — which has been providing some of the most insightful coverage of the Enron affair — notes that Mr. Lay’s defense theory of being an avuncular grandfather who was betrayed by underlings may be hard to prove:

In truth, though, Mr Lay was never the simpleton he now makes himself out to have been. Four years ago, in an interview with The Economist, he revealed an aggressive and somewhat dark management streak. In reply to a question about Enron?s perceived arrogance and disdain for the law, he pointed to what he considered another great firm unfairly maligned by ignorant critics as arrogant: Drexel Burnham Lambert, an investment bank that?like Enron?rose quickly from obscurity to market dominance during the junk-bond boom of the 1980s, only to implode amid charges of wrongdoing. Mr Lay gushed about the brilliance of Michael Milken, Drexel?s star trader, who ended up in jail. Mr Milken (a ?dear friend?) was accused of being arrogant, he said, but was just being ?very innovative and very aggressive?. Prosecutors will no doubt argue that the fraud at Enron was a direct result of Mr Lay?s push to make the company just as ?innovative? and ?aggressive? as the defunct Drexel.

In the meantime, the Lay Endowed Chair in Economics at the University of Missouri remains unfilled.

It looked like a video campsite outside the Federal Courthouse in Houston on Thursday as the media gathered to observe the spectacle of former Enron Chairman and CEO Kenneth Lay being led into the courthouse in handcuffs. Mr. Lay pled not guilty to an 11 count indictment that was included in a superceding indictment against Mr. Lay’s co-defendants, former Enron CEO Jeffrey Skilling and former Enron chief accountant, Richard Causey. The case is pending before U.S. District Judge Sim Lake, an able and fair judge who oversaw the sad case of Jamie Olis earlier this year.
In an unusual response in case that seems to generate unconventional moves, Mr. Lay conducted a press conference soon after his initial court appearance in which he asserted that he was not responsible for the company’s accounting problems and that former Enron CFO Andrew Fastow was to blame for most of Enron’s problems. During the press conference, Mr. Lay acknowledged that there had been wrongdoing at Enron, but claimed he did not know about it and that Mr. Fastow had betrayed his position of trust at Enron.
Defendants in high-profile criminal cases usually do not make public comments on their case out of fear that the statements could provide new ammunition to prosecutors. But Mr. Lay’s attorneys almost certainly feel that the public climate related to anything having to do with Enron is so polluted that they have little to lose by attempting to have Mr. Lay proclaim his side of the story publicly, just as he did in this earlier extraordinary interview in the NY Times.
The indictment alleges that Mr. Lay played a criminally culpable but surprisingly limited role in a massive conspiracy to deceive and defraud investors of Enron. The 11 criminal counts accuse Mr. Lay of helping to manipulate Enron’s financial statements and giving a false picture of the company’s financial health in the months before it filed its chapter 11 case in early December 2001.
One of the most interesting aspects of the indictment is that it acknowledges that Mr. Lay was not the most important player in the alleged criminal enterprise. The indictment paints Mr. Lay more as a protector of the alleged manipulative scheme by keeping it secret from the public. Indeed, all of the misdeeds attributed to Mr. Lay occurred after Mr. Skilling’s August, 2001 departure.
The indictment alleges that, until his resignation, Mr. Skilling “spearheaded” the alleged scheme and only afterward did Mr. Lay take “over leadership of the conspiracy.” The indictment against Mr. Lay focuses on the period after Mr. Skilling’s resignation, which was the period in which elaborate financial structures used to mask Enron’s true debt load became unstable and began straining the company financially.
The indictment describes several times in which Mr. Lay represented to equities analysts, credit-rating agencies and employees that the company was financially sound when, the indictment alleges, Mr. Lay knew that the company was not. The indictment alleges that Mr. Lay was being apprised on a daily basis by other Enron managers regarding the company’s financial condition, and that Mr. Lay helped devise strategies for attempting to hide even larger losses than those reported in the third quarter of 2001.
According to the indictment, a crucial period involving Mr. Lay began with a September 26, 2001 online forum he had with Enron employees. In that forum, Mr. Lay informed employees the “third quarter is looking great” even though he knew that the company would soon be reporting a giant loss for the period because of a write-down of assets, that Enron’s balance sheet contained billions of dollars of “embedded losses” and “overvalued investments,” and that the company “had been exploring such drastic solutions to Enron’s financial problems as a merger with another company (what turned out to be the ill-fated Dynegy merger). The indictment contended that Mr. Lay followed up this conference with a series of similarly misleading presentations to securities analysts and others in October and November, 2001.
The indictment includes a number of sentencing allegations that address last month’s U.S. Supreme Court ruling in the Blakely case that is being construed as limiting federal judges’ ability to boost convicts’ sentences beyond the lower end of the Federal Sentencing Guidelines range. Among these allegations are that the losses related to Enron exceeded $100 million and involved more than 50 victims, levels that put a white-collar offender at the top of the federal fraud guidelines range for sentencing purposes. Consequently, if convicted on all counts, Mr. Lay could face what amounts to a life sentence in prison and millions of dollars in financial penalties.
After Mr. Lay’s initial appearance, veteran Houston criminal defense lawyer Mike Ramsey stated that he would file a motion to sever Mr. Lay’s case from that of Messrs. Skilling and Causey and hoped to be in trial by September of this year, which is highly unlikely in a case of this magnitude. Mr. Ramsey acknowledged that Enron had problems when Mr. Lay retook control in August 2001, but observed that all major corporations have problems and that Mr. Lay strongly believed that, despite the problems, Enron was doing well overall and had a bright future.
In a related action, the Securities and Exchange Commission piled on Mr. Lay by filing civil charges of fraud and insider trading against him in Houston federal court. Those civil charges allege that Mr. Lay lied to investors about Enron’s financial health and falsely inflated the company’s share price so he could profit from a series of stock transactions. Unlike the criminal cases against Messrs. Skilling and Causey, Mr. Lay was not criminally charged with insider trading of Enron stock, but the SEC’s civil action included such a charge.
Meanwhile, other than the criminal prosecution that put Arthur Andersen out of business, the Enron Task Force still has not prosecuted a single trial of a former Enron executive, primarily because the Task Force’s sledgehammer approach to indicting executives has elicited guilty pleas from the executives charged to date in order to take advantage of prison sentences that are a fraction of the length that the executives would face if they took their cases to trial.
The first trial of a former Enron executive is currently scheduled to begin in mid-August in the so-called “Nigerian Barge case” before U.S. District Judge Ewing Werlein. Under normal circumstances, that case would not be a strong case for the prosecution. However, normal circumstances simply do not exist in regard to Enron, so all parties and counsel involved in the Enron-related cases will be watching that case closely to determine whether it is possible for an Enron defendant to receive a fair trial in today’s negatively charged atmosphere for anything related to Enron.
On that latter point, Professor Ribstein — rested from his Scottish holiday — hits the nail on the head with his latest observation regarding Mr. Lay and Enron.