Enron Task Force prosecutors are investigating whether Linda Lay, the wife of Enron’s former Chairman and CEO, Kenneth L. Lay, engaged in illegal insider trading by selling Enron stock days before Enron filed its chapter 11 case on December 2, 2001.
The particular sale in question involved 500,000 shares of Enron stock that was sold through a Lay family foundation. The foundation proceeded to distribute the $1.2 million in sales proceeds to various charitable organizations.
The investigation of Mrs. Lay is a part of the Task Force’s scrutiny of the Lays’ actions during the weeks immediately preceding the filing of Enron’s bankruptcy case. Sources close to the case indicate that other transactions that have not yet been publicly disclosed are also a focus of that investigation.
Mr. Lay’s lawyer, Michael Ramsey of Houston, responded to the embarrassing disclosure by publicly criticizing the Task Force’s motives and alleging that the disclosure is simply the latest ploy by the government to to bring pressure against Mr. Lay to plead guilty. “This is the last gasp of a dying prosecution,” Mr. Ramsey said. “This is an attempt at extortion. If I tried something like this, I would be indicted.”
Don’t give this bunch of prosecutors any ideas, Mike.
The investigation of Mrs. Lay is focusing on a sale that she placed on behalf of the foundation on the morning of Nov. 28, 2001. That morning, Mrs. Lay apparently placed an order for the foundation to sell its Enron shares sometime between 10 and 10:20 a.m. At 10:30 a.m. that morning, Dynegy and Enron issued press releases informing the public that Dynegy was calling off its proposed purchase and merger with Enron. The news hammered the value of Enron shares as they sunk by more than $1.50 a share almost immediately after the press releases and closed at $.60 per share by the end of the day. The foundation sold its shares at a price of $2.38, which generated proceeds of about $1.2 million. Had the sale occurred the next day, it would have generated about $300,000.
As noted above, this transaction is only one of several others in which the Lays engaged that the Task Force is currently examining that could result in an indictment of Mrs. Lay and additional counts against Mr. Lay. Public disclosure of the other transactions being investigated would be just as embarrassing for the Lays as this one. The Task Force is putting the pressure on Mr. Lay to turn on his co-defendants in his pending criminal case — former Enron CEO and COO Jeffrey Skilling and former Enron chief accountant Richard Causey — and the level of that pressure will continue to increase over the next several months.