Ex-Enron Chief Faces $70m Stocks ProbeAug 29, 2002 | FT.com
Federal investigators are focusing their inquiry of Enron's former chief executive Kenneth Lay into sales of $70m in stock he made while the company was collapsing last year, according to lawyers involved.
The new focus suggests the government is attempting to build an insider trading case against him. Investigators have questioned lawyers and accountants for Mr Lay three times over the past two months.
In none of the meetings - which involved officials from the Justice Department, the Federal Bureau of Investigation, and the Securities and Exchange Commission - was Mr Lay's role in the vast accounting fraud that bankrupted the company discussed, say participants.
Last week, Michael Kopper, a former senior finance official at Enron, pleaded guilty to using Enron's controversial off-balance sheet partnerships to enrich himself and former chief financial officer Andrew Fastow.
But nowhere in the charges or other documents uncovered by federal and congressional investigators is Mr Lay mentioned as participating in the scheme.
Michael Ramsey, Mr Lay's Houston-based lawyer, insisted evidence he and Mr Lay's accountants had handed over to federal investigators would clear Mr Lay of any insider-trading allegations.
According to SEC filings, Mr Lay sold more than $100m in Enron stock during 2001, but investigators are focusing on the $70m worth of shares not sold on the open market, Mr Ramsey said. More than $26m of those shares were sold after Enron accountant Sherron Watkins wrote to Mr Lay in August warning the company may "implode in a wave of accounting scandals".
Mr Ramsey said the $70m in question were shares sold directly to Enron in response to at least 15 margin calls coming from banks, which had loaned Mr Lay $80m to $90m with Enron stock as collateral.
They were not sold because of any inside information about Enron's declining prospects, he said.
According to Mr Ramsey Mr Lay cancelled a programme that automatically sold Enron stock on the open market when the share price slid below $45 in mid-2001 because he believed the stock was undervalued.
"He held onto as many shares as he possibly could," Mr Ramsey said. "I just hope the people at the line level do a thorough investigation and don't get persuaded by political pressures."
The Justice Department declined to comment.
Mr Lay began 2001 with sizeable loans from Bank of America, First Union and Paine Webber, backed by Enron stock, Mr Ramsey said. As Enron stock began to slide, he received margin calls from the banks and took out loans from Enron to meet the obligations. Such loans were permitted under his Enron compensation package, Mr Ramsey said.
Mr Ramsey, who participated in two of the meetings, said he was not questioned about Mr Lay's role in the private partnerships, which had names like Chewco and Southampton. "The Chewco-Southampton thing was a crime," he said. "If you're doing criminal activity, you generally don't tell the boss."