Enron Team Says Lay Took Some Blame

Former Enron Corp. Chairman Kenneth L. Lay acknowledged to company investigators that he should have kept a closer eye on the energy trader’s financial operations, but he also pointed the finger at subordinates, the head of the company’s internal investigation told Congress on Tuesday.

“I think he felt he had not been watching carefully enough, but he certainly felt he had been betrayed,” said William C. Powers, whose team interviewed Lay as part of a recently released report examining the company’s collapse.

Meanwhile, lawmakers grilled Joseph F. Berardino, the head of Enron’s former outside auditor, Andersen, for destroying thousands of documents related to Enron and for helping to create some of the off-the-books partnerships that led to Enron’s demise.

“Your company helped set these up,” said Rep. Paul E. Kanjorski (D-Pa.). “You’re not some innocent coming in here as an auditor and having all these transactions that are out there and you’re just looking at them. You went through the intellectual analysis of how to do these things.”

House and Senate committees still want to hear directly from Lay, issuing subpoenas Tuesday for him to appear next week. He and another star witness--former Chief Financial Officer Andrew S. Fastow, who has been asked to appear on Thursday--are expected to invoke their 5th Amendment right against self-incrimination.

Lay was summoned to appear Feb. 12 before the Senate Commerce Committee and Feb. 14 before the House Financial Services subcommittee on capital markets.

Lay spokeswoman Kelly Kimberly, asked about whether Lay would invoke the 5th, said, “He is still determining his strategy for how to handle the hearings.”

Unable to hear from Lay, members of the House Energy and Commerce subcommittee on oversight and investigations sought to find out from Powers, dean of the University of Texas law school who joined Enron’s board last fall, exactly what the former Enron chief knew and when he knew it.

The Houston-based energy company--once one of the nation’s largest and best-connected corporations--sought bankruptcy protection Dec. 2 amid questions about its accounting practices. Less than a month before filing for Chapter 11, Enron revealed previously unreported losses of $586 million over the previous 4 1/2 years.

Powers, whose team spent four hours interviewing Lay during its internal probe, said Lay was aware Enron was using company stock to hedge against investment losses.

“He didn’t understand or appreciate that there was anything wrong with that,” Powers told the committee. “I don’t know whether that’s credible. That’s his story.” Lawmakers said they hope to secure notes of Powers’ interviews of Lay and other senior officials.

Powers’ 203-page report, released late Saturday, concluded that accounting abuses masked more than $1 billion in losses in a one-year period and assigned widespread blame to Enron management, accounting firm Andersen, company lawyers and Enron’s board for creating--and then failing to oversee--a series of partnerships that sparked the company’s bankruptcy filing. The report noted that Lay, a major fund-raiser for President Bush, was “captain of the ship” for most of the time that abuses were occurring and “bears significant responsibility for ... flawed decisions” of subordinates.

Powers said the Enron investigating team also met briefly with Fastow, but “very little information was forthcoming”--a sign of the challenge before Congress in grilling the man who is regarded as the expert on the partnerships.

Powers told the committee that Andersen stopped cooperating with Enron’s internal investigation once the company fired the accounting firm, saying the auditors had destroyed documents sought by government investigators.

But Andersen’s chairman, Berardino, said the firm offered to assist Powers but was not contacted by his team after the Jan. 17 firing.

At his second appearance before a House Financial Services subcommittee, Berardino offered few new details about why Andersen destroyed documents and failed to warn investors about Enron’s questionable accounting practices.

Asked about the shredding, Berardino said, “I’m embarrassed by what happened at my firm.”

But Berardino repeatedly said he did not know the details of Andersen’s business dealings with Enron, whether Andersen employees knew about problems or what documents were destroyed. “How could you not know?” asked Rep. Richard H. Baker (R-La.).

“Maybe it’s better to be dumb than culpable, but we want some answers,” said Rep. Gary L. Ackerman (D-N.Y.).

Andersen has not completed its own internal investigation into the Enron matter. Berardino disputed allegations in the Powers report that the firm was instrumental in creating some of the questionable partnerships. “It’s not like we were running around town shopping these things,” he said. He said Andersen merely reviewed proposals made by Enron managers.

At a separate House hearing, Rep. W.J. “Billy” Tauzin (R-La.), chairman of the House Energy and Commerce Committee, said that congressional investigators were finding that “there was no legitimate purpose in the construction of some of these deals except in the defrauding of investors.”

Investigators also have found that “some [investment] banks were told they’d get special bond deals if they would put the money up for some of the partnerships,” Tauzin said.

A Tauzin spokesman declined to elaborate.