Enron's Ken Lay: I Was Fooled
Once the seventh-largest company in America, Enron was wiped out in what seemed like a matter of days. Employees were sent out on the street, and billions of dollars were gone. Now, Lay is under federal indictment, and his long-awaited trial is scheduled for January.
When Lay was subpoenaed to testify before the Senate, he refused to answer their questions. But now, Lay sits down with Correspondent Scott Pelley to finally talk about the the lying, and the downright incompetence behind the rise and fall of Enron.
"You know what many people are thinking, rightly or wrongly, they see Ken Lay's face on the screen and they say to themselves, 'There's the crook that ruined Enron,'" says Pelley to Lay.
"I'm sure you're right. I'm sure most Americans are convinced that I at least in part caused Enron's collapse and all that pain and suffering that followed," says Lay.
The pain and suffering aren't forgotten, even three years later. The failure of Lay's company left 4,000 people without jobs, and wiped out savings and pensions. Enron went bust owing creditors $65 billion dollars. And Lay, once revered, was mocked in the Senate, lampooned in the press, and finally, last summer, charged with fraud by federal prosecutors.
Lay faces a maximum statutory sentence for these charges of 175 years. How does he feel about having his name associated with scandal? "I don't like it at all as you'd expect," says Lay. "The last thing I would have ever expected to happen to me in my life would be that, in fact, I would be accused of doing something wrong and maybe even something criminal."
Lay admits there were criminals at Enron. But throughout the interview, he insisted he was a victim, not a villain.
What responsibility does he take, as chief executive officer, for the failure of Enron?
"I have to take responsibility for anything that happened within its businesses," says Lay. "But I can't take responsibility for criminal conduct of somebody inside the company."
"This is what I call the Elmer Fudd defense -- that I went to work every day and was paid $6 million a year and had a Ph.D. in economics -- and somehow, despite all of this, I didn't know anything that was going on. It's laughable," says Bill Lerach, a lawyer who sued to stop document shredding by Enron's accountants. Now, he's leading an investor lawsuit against the company, its bankers, its accountants and Lay.
"What was he doing every day in his office? Reading comic books? This man was the CEO of the company," says Lerach. "He had an obligation to be informed about what was going on in that business every day in every way. And he utterly failed to do it."
Lay started life dirt poor on a Missouri farm, the son of a part-time preacher. In school, he worked his way up, earning a Ph.D. in economics.
As a young man, he turned to the energy business, and in 1985 he merged two natural gas companies to create Enron. It was an old-fashioned pipeline network. But in the mid '90s, Enron executive Jeff Skilling transformed Lay's company.
Enron became more like a commodities exchange with traders buying and selling huge contracts to deliver gas and electricity. Enron moved from turning wrenches to spinning deals. Lay and Skilling were pictured as giants, and Enron was named the most innovative company in America for six years in a row.
"There was this ultimate faith within Enron, that, 'We're all geniuses. We know we're geniuses. We're on the covers of magazines, and they're telling us we're geniuses,'" says Kurt Eichenwald, who spent years covering Enron as a business correspondent for The New York Times. His new book, "Conspiracy of Fools," portrays the company's rise and fall.
"Wall Street was saying how brilliant they were. Bankers were throwing money at them saying how brilliant they were and nobody was standing back and saying, 'How are they making this money?'"
Nobody was questioning the power merchant who'd become a power broker. Lay golfed with President Clinton and was particularly close to George and Barbara Bush. Years later, when their son became president, Lay flew the Bushes to the inauguration on an Enron plane. He had become Houston's hometown hero. He spent $100 million to put Enron's name on the new baseball stadium. And when he threw the first pitch, once again, the Bushes were his fans.
Lay says he was "enjoying a lot of success." And, a lot of wealth. Prosecutors say Lay made more than $217 million in four years from stock options, and another $19 million in salary and bonuses. But while executives in Enron's tower were counting riches, some of the company's businesses were bleeding cash.
Under Lay and Skilling, Enron had aggressively pushed into new ventures -- municipal water systems, broadband Internet, overseas power plants. Eichenwald says Enron was growing too fast into businesses it didn't understand.
"They spent billions and billions and billions of dollars on businesses that didn't work," says Eichenwald. "And when they didn't work, they'd say, 'Let's spend more on another business.'"
Ordinarily, that would alarm Wall Street, except you couldn't find those losses on Enron's balance sheet. Enron's chief financial officer, Andrew Fastow, was manipulating the company's public reports to mislead investors. In other words, he was cooking the books.
Fastow's already pleaded guilty to falsifying Enron's balance sheet, and to conspiring with other employees to skim millions for themselves. Fastow wouldn't talk to 60 Minutes, but he's cooperating with prosecutors in return for a 10-year sentence. Lay blames Fastow, not just for stealing, but for mismanaging Enron's finances and wrecking public confidence in the company.
"I think the primary reason for Enron's collapse was Andy Fastow and his little group of people and what they did," says Lay.
But how could a company be losing billions and the CEO not know it, even if the CFO is crooked?
"We weren't losing billions, though," says Lay. "I mean, our primary businesses in wholesale pipelines, utilities, retail, were all doing extremely well."
Lay insists that if the market hadn't lost confidence in Enron, the company could have worked out its problems.
"At the end of the day, you have a company with $30 billion in debt and no cash flow," says Pelley.
"But that is not true," says Lay. "I mean, the company had a lot of strong cash flows when it went into bankruptcy."
"You just said that the company had a lot of strong cash flows when it went into bankruptcy," says Pelley. "You understand how strange that sounds? The company was deeply troubled. And the question is, 'You're chief executive officer. Shouldn't you know that?'"
"I did not know that," says Lay. "Because Andy and his team were lying to me and the board and the senior executives."
Lay also told 60 Minutes he didn't know about another scandal brewing in the company. In 2000, when California was suffering a power crisis, Enron traders were manipulating electricity flows to jack up profits. They were even taped boasting about it.
"Those comments, and the other comments that I've seen are disgusting and despicable," says Lay of the taped discussions.
"These are your guys," says Pelley.
"Those are some of our guys," says Lay. "But the most important thing is, Enron did not cause the California crisis."
"But Enron here is acting as a predator," says Pelley. "California is wounded, and Enron moves in."
"Well, I would hope that if a supervisor would have seen that, heard that, or whatever, they'd been dismissed," says Lay.
But it was an Enron vice president and two other managers who pleaded guilty to the fraud in California. It was about this same time, back in Houston, that the giant began to stumble. Reporters questioned Enron's immaculate balance sheet. Skilling abruptly resigned. There were news reports of Andy Fastow's double dealing. Investors were spooked. And vital trading partners walked away.
"The marketplace abandoned Enron. There were traders sitting in the trading room, you know, talking on the phones, screaming 'Nobody will deal with me,'" says Eichenwald. "At the end of the day when you have a trading business where nobody will trade with you, you're dead. You die immediately."
And it did. The stock fell from a high of $90 to 26 cents. In December 2001, Enron was bankrupt. People like Angelina Lorio, who spent nearly 27 years on the job, were on the street.
"These guys who did this to us," says Lorio. "I don't know how they can sleep at night. It's the ultimate betrayal."
What does Lay say to her? "I'm sorry, I'm dreadfully sorry. If there's any way at all that I could restore any or all of that, I'm sure I would," says Lay. "But I fought as hard as I could with my almost-- last breath, prior to the time we-- Enron collapsed, doing everything we could to save it. But we just couldn't save it."
It took investigators two years, but now Enron's top executives face trial on a variety of charges. Lay is accused primarily of lying about Enron's health in the final months. Prosecutors say he broke the law when he said this to employees five weeks before failure: "Our liquidity is fine. As a matter of fact, it's better than fine. It's strong."
"There were problems. There were losses," says Pelley. "And you're telling secretaries, and low-level employees, buy the stock, it's a bargain. You must have known better."
"I didn't know better. And matter of fact, quite the contrary," says Lay. "I had every reason to think that the underlying businesses, the fundamentals of the underlying businesses, were strong."
Lerach, who's suing Lay, says he doesn't buy it: "I will tell you this. Ken Lay was telling Andy Fastow, 'We better make $0.76 a share this quarter. And I don't care what you have to do. You get it done and you make those numbers."
"Were those your instructions, to Andy Fastow, 'Every quarter, that balance sheet better look good. You handle the details,'" asks Pelley.
"No, I, first of all, those were not my instructions," says Lay. "But certainly I didn't know he was doing anything that was criminal."
Lay told us, at the top, he was worth $400 million -- most of it in Enron stock that he held onto until the end. Now, he's down to $20 million, which he worries will be lost to lawyers and lawsuits.
"I think ultimately he will be [ruined]," says Eichenwald.
Is it Lay's own fault? "Yes," says Eichenwald. "This debacle is no single person's fault. But he was in charge. He was at the top of his company when everything went awry."
Ultimately, what was it that killed Enron?
"Everyone thinks Enron was killed by crime. It wasn't," says Eichenwald. "Enron was killed by massive incompetence, massive mismanagement."
Lay doesn't agree with that assessment and he doesn't like the title of Eichenwald's book, "Conspiracy of Fools." But as he prepares for trial, Lay is trying to improve his image. And that is probably why he chose to talk to 60 Minutes.
"The Department of Justice says you're a criminal," says Pelley. "The title of the book suggests all of you were fools. Which is it?"
"I don't think I'm a criminal, number one," says Lay. "Am I a fool? I don't think I'm a fool. But I think I sure was fooled."
Lay will find out whether a jury agrees when his trial takes place next January.
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