After resisting for more than a year, former Enron Chairman Kenneth L. Lay has agreed to surrender personal and corporate records that could be used for criminal and civil investigations in the pursuit of charges against him and others.
The development Friday in the case involving Enron, the company whose bankruptcy led a wave of big corporate scandals that shook investors’ confidence, came in an agreement between Lay and the Securities and Exchange Commission. It was approved by U.S. District Judge Royce Lamberth.
Under the accord, the SEC can use leads derived from the documents for any law enforcement purpose, including possible civil action. The Justice Department also gets access to the documents, to pursue possible criminal charges.
Both agencies have been investigating massive alleged accounting fraud at the Texas-based energy company. Enron’s bankruptcy in December 2001, the second-largest in U.S. history, cost thousands of jobs and wiped out hundreds of millions of dollars in retirement savings.
Lay had contended that turning over the documents would violate his Fifth Amendment right against self-incrimination. The records, which he must provide by early next week, include copies of Enron memoranda, papers that contain his handwriting and copies of letters, position papers and drafts of speeches.
SEC attorneys maintained there was no constitutional protection for the records and said they must be turned over even if they might incriminate Lay personally. And besides, the SEC said, Lay already had turned over the same documents to the court-appointed examiner who is monitoring Enron’s bankruptcy on behalf of the company’s creditors in federal bankruptcy court.
Michael Ramsey, one of Lay’s attorneys, called the yearlong standoff a “squabble” created by the SEC.
“It was a question of how it would be turned over, not whether they would be turned over,” Ramsey said.
Given the enormity of the Enron case and the pressure for sharp government action, “the SEC had no choice but to push this thing,” said Dan Small, a former federal prosecutor now in private law practice. He suggested that a few years ago the agency might well have tried to reach a settlement with Lay rather than risk losing a complex case at trial.
As for Lay, he and his attorneys may have feared that potentially damaging information could have surfaced at a hearing on compliance with the SEC’s subpoena for the documents, Small said.
Separately, the indictment last month of a former Enron executive who pleaded guilty to an insider-trading charge has widened a net that analysts say could lead to the company’s former chief executive, Jeffrey Skilling, as well as Lay and others.
David W. Delainey, who once ran Enron’s retail energy unit, became the highest-ranking former executive so far to plead guilty and cooperate with investigators. He agreed to forfeit nearly $8 million to the government and faces a maximum of 10 years in prison and a $1 million fine.
While the government has not filed criminal charges against Lay or Skilling, the two have been named in dozens of lawsuits brought by Enron shareholders and employees, and in a civil lawsuit filed in June by the Labor Department against the company and several former executives and directors that has been folded into the employees’ litigation.
The Labor lawsuit seeks to recover hundreds of millions of dollars in retirement money that Enron employees lost when the company spiraled into bankruptcy.
Both Lay and Skilling, through their attorneys, have repeatedly said investigators will conclude that they committed no crimes.
The SEC does not plan to make the documents that Lay turns over available to the public because they are part of an investigation, agency attorney Luis Mejia said.
The highest-ranking Enron executive charged to date is former chief financial officer Andrew Fastow, who faces close to 100 criminal charges including fraud, money laundering, conspiracy and obstruction of justice. Fastow has pleaded innocent and is free on $5 million bond as he awaits trial next April.
In August 2002, Michael Kopper, managing director under Fastow of Enron Global Finance, pleaded guilty to money laundering and conspiracy and agreed to cooperate with federal prosecutors.