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The Honolulu Advertiser
Posted on: Wednesday, April 26, 2006

Enron's demise blamed on media

By Kristen Hays
Associated Press

Kenneth Lay

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HOUSTON — Enron Corp. founder Kenneth Lay blamed the media yesterday for undercutting his company's strengths in the weeks before it crashed by highlighting problems at Enron that he said were already cleaned up.

Yet he said more problems, including restatement of previously announced earnings that wiped out nearly $600 million in profit for the previous four years, further pushed Enron toward bankruptcy protection as investor confidence eroded in October and November of 2001.

The restatement is unrelated to criminal counts against Lay, but he noted that it added to the firestorm he said was ignited by the media.

"Obviously, that was a devastating blow to the financial markets and us," an agitated and sometimes bristling Lay told jurors in his fraud and conspiracy trial.

The former chairman and chief executive appeared to be trying to control the examination by defense lawyer George Secrest in his second day on the stand, saying, "I'm not sure where you're going with that," when Secrest asked him to differentiate strategic from nonstrategic assets. Lay then affably explained that a strategic asset is considered to be strategic to a certain business.

"He and (former Enron Chief Executive Jeffrey) Skilling could not be more different in their demeanor," said Philip Hilder, a former federal prosecutor who represents several ex-Enron executives, outside of court. Skilling, Lay's co-defendant in the federal criminal trial, finished nearly eight days on the witness stand last week.

Hilder's ex-Enron clients include Sherron Watkins, a former executive who won fame for trying to warn Lay of the financial peril facing the company days after he stepped back into the CEO role after Skilling's abrupt resignation in August 2001.

Hilder said Lay appeared to be "taking control of the questioning and charting his own course" to "reinforce his version of reality," while Skilling let his lead attorney, Daniel Petrocelli, guide his testimony.

Testimony in the three-month trial could last three more weeks, lawyers on both sides told U.S. District Judge Sim Lake yesterday after jurors were dismissed for the day.

The judge told the panel last month that the case could wrap up before the end of April. He said yesterday he may lengthen the court day or cut the daily 90-minute lunch break to pick up the pace.

The government says Lay and Skilling conspired with each other and their staff to hide accounting tricks and flailing business ventures until the company collapsed into bankruptcy proceedings in December 2001.

Both defendants say there was no fraud at Enron other than that committed by former Chief Financial Officer Andrew Fastow and a few others, who skimmed millions from secret scams.

Lay, who began testifying Monday, continued to insist yesterday that Enron cratered in a storm of bad press, a skittish post-Sept. 11 market and Fastow's greed.

The day after Enron reported losses in the third quarter of 2001, The Wall Street Journal began publishing articles questioning the propriety of partnerships created and run by Fastow in 1999 to conduct deals with Enron. Fastow had sold his personal interest in those LJM partnerships in 2001, and Lay told jurors yesterday he considered them "an old, dead issue."

But the Journal didn't — and Lay insisted that in September he had reluctantly followed advice of Enron public relations staff to refuse to answer the newspaper's questions about them.

"My policy had always been it's better to talk to the press than not talk to the press," Lay told jurors.