The collapse of Enron and a criminal investigation give senators ample ammunition to attack the former chairman.
By MARY JACOBY, Times Staff Writer
© St. Petersburg Times, published February 13, 2002
WASHINGTON -- To be a photographer crouched before the table where former Enron chairman Kenneth Lay would soon raise his right hand and take the Fifth Amendment is to know, perhaps, how it feels to be the family dog at the dinner table.
Ears forward and muscles tense, the news photographers kept their lenses trained on the empty table Tuesday, waiting for their scrap of meat while members of the Senate Commerce Committee spent an hour and 15 minutes berating Lay for, as Maine GOP Sen. Olympia Snowe put it, this "failure of Homeric proportions."
Then, finally, Commerce Chairman Fritz Hollings, D-S.C., called Lay to the table. He asked the disgraced former top political fundraiser for President Bush to raise his right hand. With camera shutters snapping, the photographers took their reward.
In asserting his right against self-incrimination and declining to testify about the largest corporate bankruptcy filing in American history, Lay became the latest star in Washington's venerable tradition of Fifth Amendment political theater.
Savings and loan scandal figure Charles Keating did it. Housing and Urban Development Secretary Samuel Pierce did it. Iran-Contra figures like Oliver North and John Poindexter would have done it, had Congress not granted them immunity from prosecution.
On down through the many scandals of the Clinton administration, committee chairmen have been hauling witnesses before the klieg lights on Capitol Hill to respectfully decline to testify when, for legal purposes, a simple letter from their lawyer would suffice.
But Lay's appearance Tuesday, as well as a similar performance expected Thursday before a House Financial Services subcommittee, is not about the law. It's about politics.
And even the most committed free-market politician recognizes points to be scored in bashing Enron, whose top executives collectively reaped hundreds of millions of dollars in profits before the energy-trading company collapsed, leaving employees and stockholders with huge losses.
"This is not capitalism," Sen. Gordon Smith, R-Ore., said. "This is a conspiracy that may have been a crime." Added Sen. Jean Carnahan, D-Mo.: "Mr. Lay, we are all stunned and confused by Enron's behavior and especially by your unwillingness to come clean."
Sen. Bill Nelson, D-Fla., noted that Florida's pension fund for 825,560 state workers and retirees "got hit the hardest" of any investor by Enron's collapse. Alliance Capital, one of the fund's big money managers, purchased chunks of Enron stock as the price began to fall, eventually sustaining $334-million in losses.
And Sen. Barbara Boxer, D-Calif., accused Enron's energy traders of worsening California's electricity crisis in 2000 and 2001, which cost the state billions of dollars. "My state was bled dry by price gouging," she said.
Before its Dec. 2 bankruptcy filing, Enron was the nation's seventh-largest company, and Lay was its amiable public face. He spoke often of corporate integrity and was a paternalistic presence for Enron's thousands of employees.
But now, with Enron under criminal investigation by the Justice Department, Lay became the sixth executive associated with the company to assert his right against self-incrimination and decline to testify before Congress.
"I am deeply troubled about asserting these rights because it may be perceived by some that I have something to hide," Lay told the committee. "But after agonizing consideration, I cannot disregard my counsel's instruction."
After his statement, Lay quickly departed the hearing room, leaving his attorney, Earl Silbert, to assure reporters that Lay had "agonized very deeply" about his decision to stay mum.
The Rev. Jesse Jackson, who a couple of months ago likened Lay to the biblical figure Job, had shifted with the political winds and was now leading laid-off Enron employees in protest about their lack of severence pay.
Jackson pushed two of the angry ex-employees toward the TV cameras.
"It was difficult because we had trusted him," Debbie Perrotta said of watching Lay decline to testify. "He was like a father figure."
"He would spend thousands of dollars around the office on these little trinkets that said things like "integrity,' and "respect,' " Debra Johnson said with a rueful laugh.
That was before Enron was forced to restate earnings last year.
It turned out Enron executives had set up thousands of offshore partnerships that kept some $500-million in debt off the company's books, creating a false picture of profits that inflated the stock price.
Many Enron executives made tens of millions of dollars from the partnerships, while Lay reaped more than $200-million from the sale of Enron stock. Lay continued to urge employees to purchase the stock, even as the price dropped from around $83 a share a year ago to less than a dollar in late November.
At the same time, rank-and-file employees were prohibited from selling shares of Enron in their 401(k) retirement accounts last year for what the company says was a scheduled administrative "lockout" period.
Lay announced his intention to take the Fifth Amendment on Sunday after his former second-in-command at Enron, Jeffrey Skilling, testified last week at a House Energy and Commerce oversight subcommittee hearing.
Later, skeptical lawmakers questioned whether Skilling told the truth when he said he had not known about the thousands of complex partnerships that hid losses and debts, even though other executives testified they had warned him of the looming problems they posed.
For now, lawmakers say they are unlikely to grant Lay and other Enron executives immunity from prosecution in exchange for their testimony, as happened most notably in the Iran-Contra investigation 15 years ago.
The Enron case differs markedly, said former Sen. Warren Rudman, R-N.H., who helped lead that Reagan-era investigation.
"When the Iran-Contra situation broke, the country was facing a major crisis in the presidency. There were serious questions about whether Ronald Reagan was going to be impeached. It was far more important for the Congress and American people to find out what had gone on rather than to see John Poindexter or Oliver North in jail," Rudman said.
With Enron, Rudman said, "the Justice Department has the pre-eminent interest" in pursuing the company on criminal charges.
Enron director William Powers, who led an internal company investigation, testified after Lay's appearance.
He said documents shredded at Enron's Houston headquarters may have been pertinent to the congressional investigation and added that Lay had approved partnership arrangements by other senior Enron executives.
In one case, "Mr. Lay had signed off on a deal approval sheet" for a related transaction, Powers said, concluding that Lay "bears significant responsibility" for Enron's collapse.
- Information from the Associated Press was used in this report.