Witness: Skilling, Lay Lied in Call
Kenneth L. Lay and Jeffrey K. Skilling were lying when they told Enron Corp. investors in 2001 that the company was “in great shape,” the company’s former treasurer testified during the executives’ fraud trial Tuesday.
On Aug. 14, 2001, the day Skilling quit as chief executive and was replaced by Lay, the two men held a conference call in which Lay said Enron was in its “best and strongest shape” ever. In fact, the company was short on cash and loaded with debt, former Treasurer Benjamin Glisan Jr. said after prosecutors played a recording of the call.
“Were those issues known by Mr. Lay and Mr. Skilling on that day?” Assistant U.S. Atty. Kathryn Ruemmler asked.
“Yes, they were,” said Glisan, 40, testifying on furlough from federal prison, where he is halfway through a five-year sentence for conspiracy to commit securities fraud at Enron.
Lay, 63, and Skilling, 52, face at least 25 years in prison if convicted on charges that they conspired to defraud Enron investors and enrich themselves. Defense lawyers say prosecutors are seeking to criminalize normal business practices and that the two executives were victims of unscrupulous subordinates.
The jury, after two days of testimony from accountants and a Wall Street analyst, began scribbling notes when Glisan identified himself. Glisan, who was given immunity from further prosecution for his testimony, said Skilling knew as of the day before he quit that Enron’s international assets were overvalued by about $4.5 billion.
Ruemmler showed an e-mail distributed to Enron management that contrasted the $10 billion book value of the assets with a $5.5-billion “Jeff Skilling’s estimate.”
“Was that well known among the senior management team, including Mr. Lay, in August of 2001?” Ruemmler asked.
“Yes, it was,” Glisan said. “Mr. Skilling’s estimate was $4.5 billion less than our carrying value.”
Glisan was called a “performing monkey” by Lay’s lead lawyer, Michael Ramsey, after the trial adjourned for the day. “I am amazed by what can be produced by 100 hours of practice,” Ramsey said. “What you saw in there today was a scripted ventriloquism show.”
In 2003, Glisan admitted falsifying Enron’s reported financial results to make the company look more successful than it was. Prosecutors said he used an off-the-books partnership to falsify the company’s financial picture to the public. He and Dan Boyle, Enron’s former vice president of global finance, are the only Enron executives doing time.
“I thought Glisan was an excellent witness,” said Michael Wynne, 38, a former federal prosecutor who is now in private practice at Yetter & Warden in Houston. “He was able to quite convincingly say Ken Lay knew about the financial problems at Enron back during the relevant time period.”
Legal experts have partially blamed partnerships and hedging vehicles created by former Enron finance chief Andrew S. Fastow for Enron’s meltdown. Skilling’s and Lay’s defense teams claim Fastow, who already has pleaded guilty to fraud charges stemming from Enron’s demise, stole at least $25 million from the company in connection with partnership-related deals. Glisan reported to Fastow.
Earlier Tuesday, former Arthur Andersen auditor Thomas Bauer indicated that Enron’s most senior outside auditors were themselves unaware of key aspects of the company’s finances. Bauer, chief auditor of Enron’s wholesale division, said he had no idea the company was using reserves to meet earnings targets and wouldn’t have approved if he had known.
“No one gave me this information,” Bauer said in his second day on the stand.
