Enron's Ken Lay: I Was Fooled

Scott Pelley Interviews The Former Chairman Of Enron

(CBS)  Ken Lay says his name is synonymous with scandal — and for good reason. When his Houston-based energy company, Enron, collapsed in 2001, there had never been anything like it.

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 Lay talked to Correspondent Scott Pelley about the lying, and the downright incompetence behind the rise and fall of Enron.

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“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 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.