Former Enron chairman Kenneth Lay was indicted Wednesday by a federal grand jury in Houston, a milestone in the Justice Departmen’s 2Â½-year investigation into a fraud that devastated what was once the nation’s seventh-largest company.
The indictment of Enron’s former top executive is expected to be unsealed in court Thursday.
Lay, 62, issued a statement Wednesday evening saying he would surrender to authorities this morning. “I have done nothing wrong, and the indictment is not justified,” he said.
The energy company’s collapse in late 2001 wiped out the retirement savings and jobs of thousands of employees and led a parade of corporate accounting scandals that set off investigations from California to Washington, D.C.
Lay’s indictment supports the Bush administration’s pledge two years ago that it would not tolerate corporate wrongdoing. Lay enjoyed a close relationship with the first President Bush and was a fundraiser for the current President Bush’s campaign against Al Gore in 2000, earning his own nickname from the nation’s chief executive: “Kenny Boy.”
According to the Center for Public Integrity, Enron executives contributed more than $600,000 to Bush campaigns, making Enron the second-largest contributor to the president’s political career, behind credit card giant MBNA.
“I do think he was put under closer scrutiny because of his connections to Mr. Bush,” says Philip Hilder, the Houston attorney who represents Enron internal whistle-blower Sherron Watkins. “But the government obviously feels it has enough evidence to do this.”
The indictment is likely to accuse Lay of securities fraud for his efforts to maintain the company’s stock price in 2001, even after Watkins alerted him to a potential accounting scandal at the company.
Watkins warned Lay in August of that year that she had discovered a series of bogus accounting maneuvers designed to make the company’s earnings look stronger than they were. In a meeting with Lay that month, Watkins urged him to bypass the company’s law firm, Vinson & Elkins, and launch a vigorous investigation into the company’s accounting practices.
Instead, various investigations have revealed, Lay asked lawyers from Vinson & Elkins the firm that had approved some of the deals to conduct a quick investigation into some of Watkins’ allegations. But Lay warned the lawyers not to dig too deeply into any accounting matters. Meanwhile, Lay publicly promoted the company’s stock, telling employees to buy it.
In December 2001, Enron filed for bankruptcy-court-protected reorganization.
Since January 2002, the federal Enron Task Force has charged 29 former Enron executives and outside advisers with crimes associated with the Enron accounting fraud. In January, former Enron chief financial officer Andrew Fastow agreed to plead guilty and cooperate with the investigation in return for a 10-year jail sentence. A few weeks later, prosecutors charged Jeff Skilling, Enron’s former CEO, with 35 counts of securities fraud and related crimes. Skilling has pleaded not guilty.